Suppose That Both Gold and Silver Are Used as International

question 74

Multiple Choice

Suppose that both gold and silver are used as international means of payment and the exchange rates among currencies are determined by either their gold or silver contents. Suppose that the dollar was pegged to gold at $20 per ounce, the Japanese yen is pegged to gold at 120,000 yen per ounce and to silver at 8,000 yen per ounce of silver, and the Australian dollar is pegged to silver at $5 per ounce of silver. What would the exchange rate between the U.S. dollar and Australian dollar be under this system?

• A)$1 U.S. = $1 Australian
• B)$1 U.S. = $2 Australian
• C)$1 U.S. = $3 Australian
• D)None of the above

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