ER Ch. 2 - Both A and B are correct The dominant world...

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The single European currency is called the Answer Selected Answer: euro. A fixed exchange rate regime Answer Selected Answer: can eliminate exchange rate uncertainty. Gresham's law states that Answer Selected Answer: bad money drives good money out of circulation. The euro is Answer Selected Answer: the common currency of Europe. Suppose that the British pound is pegged to gold at £20 per ounce and the U.S. 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 best take advantage of this situation? 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. The key argument(s) in favor of flexible exchange rates rests on Answer Selected Answer:
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Unformatted text preview: Both A and B are correct. The dominant world currency since the end of World War I has been the Answer Selected Answer: U.S. dollar. One advantage of the European Monetary Union (EMU) is Answer Selected Answer: reduced transaction costs and the elimination of exchange–rate uncertainty. Suppose the United States and Great Britain are on the gold standard and the price of gold in the U.S. is fixed at $100 per ounce and the price of gold in Britain is fixed at £50 per ounce. What exchange rate should prevail between the dollar and the pound? Answer Selected Answer: £1 = $2 Which of the following is true since the introduction of a single European currency? Answer Selected Answer: National currencies such as the French franc and German mark are no longer independent currencies. The euro is now the sole legal tender in these countries....
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