1. Suppose that the British pound is pegged to gold at £6 per ounce, whereas one ounce of
gold is worth FF12.
Under the gold standard, any misalignment of the exchange rate
will be automatically corrected by cross border flows of gold.
Calculate the possible
savings for buying FF1,000, if the British pound becomes undervalued and trades for
(Assume zero shipping costs).
(Hint: Gold is first purchased using the devalued British pound from the Bank of
England, then shipped to France and sold for FF1,000 to the Bank of France).
2. A country's international transactions can be grouped into the following three main
A) current account, medium term account, and long term account
B) current account, long term account, and capital account
C) current account, capital account, and official reserve account
D) capital account, official reserve account, trade account
3. After the U.S. dollar, which of the following are the most actively traded currencies?
pound, and Canadian
pound, and Euro
C) mark, pound, and Hong Kong dollar
D) mark, pound, and Swiss franc
4. The international monetary system can be defined as the institutional framework within
A) international payments are made
B) movements of capital are accommodated
C) exchange rates among currencies are determined
D) all of the above