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Unformatted text preview: 8. Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35 per ounce. This implies an exchange rate of $1.75 per pound. If the current market exchange rate is $1.80 per pound, how would you take advantage of this situation? Hint: assume that you have $350 available for investment. A. Start with $350. Buy 10 ounces of gold with dollars at $35 per ounce. Convert the gold to £200 at £20 per ounce. Exchange the £200 for dollars at the current rate of $1.80 per pound to get $360. B. Start with $350. Exchange the dollars for pounds at the current rate of $1.80 per pound. Buy gold with pounds at £20 per ounce. Convert the gold to dollars at $35 per ounce. C. a) and b) both work D. None of the above Topic: Bimetallism: Before 1875 Topic: Evolution of the International Monetary System...
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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.
 Spring '11
 EUN

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