Suppose That the British Pound Is Pegged to Gold at £6

question 85

Multiple Choice

Suppose that the British pound is pegged to gold at £6 per ounce, whereas one ounce of gold is worth €12. Under the gold standard, any misalignment of the exchange rate will be automatically corrected by cross border flows of gold. Calculate the possible gains for buying €1,000, if the British pound becomes undervalued and trades for €1.80. (Assume zero shipping costs) . (Hint: Gold is first purchased using the devalued British pound from the Bank of England, then shipped to France and sold for €1,000 to the Bank of France) .

• A)£55.56
• B)£65.56
• C)£75.56
• D)£85.56

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Characteristic of a material or membrane that allows substances to pass through it.

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Encompassing a broad range of types, varieties, or categories.

Construct System

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