Chapter 2 Assignment - Copy.docx

Chapter 2 Assignment - Copy.docx - 1 Explain Gresham’s...

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1. Explain Gresham’s Law The law of Gresham is the principle according to which, when in a country the types of currencies of the legal course are distributed, and one of them is the public as "good" and the other as "bad", the bad currency always expels from the market to the good. In short, when it is mandatory to accept the currency for its face value, and the exchange rate is established by law, consumers prefer to save the good and not use it as a means of payment. 3. Suppose that the pound is pegged to gold at 6 pounds per ounce, whereas the franc is pegged to gold at 12 francs per ounce. This, of course, implies that the equilibrium exchange rate should be two francs per pound. If the current market exchange rate is 2.2 francs per pound, how would you take advantage of this situation? What would be the effect on shipping costs? In this case, the pound is overvalued and the franc is undervalued in the market. Therefore, it would be more reasonable to buy francs with pounds, but not pounds with francs. If I need to
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  • Winter '19
  • United States dollar, European Monetary System, European Monetary Cooperation Fund

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