Unformatted text preview: 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. Topic: Classical Gold Standard: 1875-1914 Topic: Evolution of the International Monetary System...
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- Spring '11
- Exchange Rate, United States dollar, Bank of England, International Monetary System