Chap002 8 - A. the domestic money stock should rise and...

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26. Suppose that Britain pegs the pound to gold at the market price of £6 per ounce, and the United States pegs the dollar to gold at the market price of $36 per ounce. If the official exchange rate between pounds and U.S. dollars is $5 = £1. Which of the following trades is profitable? A. Start with £100 and trade for $500 at the official exchange rate. Redeem the $500 for 13.89 ounces of gold. Trade the gold for £83.33. B. Start with $100 and buy gold. Sell the gold for £16.67. Sell the pounds at the official exchange rate. C. Start with £100 and buy gold. Sell the gold for $600. D. Start with $500 and trade for £100 at the official exchange rate. Redeem the £100 for 16 2/3 ounces of gold. Trade the gold for $600. 27. Assume that a country is on the gold standard. In order to support unrestricted convertibility into gold, banknotes need to be backed by a gold reserve of some minimum stated ratio. In addition,
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Unformatted text preview: A. the domestic money stock should rise and fall as gold flows in and out of the country. B. the central bank can control the money supply by buying or selling the foreign currencies. C. Both a) and b) 28. Under the gold standard, international imbalances of payment will be corrected automatically under the A. Gresham Exchange Rate regime. B. European Monetary System. C. Price-specie-flow mechanism. D. Bretton Woods Accord. 29. During the period between World War I and World War II, A. the major European powers and the U.S. returned to the gold standard and fixed exchange rates. B. while most countries abandoned the gold standard during World War I, international trade and investment flourished during the interwar period under a coherent international monetary system. C. the U.S. dollar emerged as the dominant world currency, gradually replacing the British pound for the role. D. None of the above....
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This note was uploaded on 11/09/2011 for the course FIN IFMG201 taught by Professor Eun during the Spring '11 term at Michigan Flint.

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