Suppose That the Pound Is Pegged to Gold at £20

question 40

Multiple Choice

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

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Definitions:

Sense Of Responsibility

The feeling or belief that one is accountable for their actions or has an obligation to perform certain tasks.

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The range of actions and mannerisms made by individuals, organisms, systems, or artificial entities in conjunction with their environment, which includes the other systems or organisms around as well as the physical environment.

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A process or action whereby an individual gives their direct and explicit approval or consent.