Imagine the Exchange Rate Between the British Pound $\le$ ) and the U

question 88

Essay

Imagine the exchange rate between the British pound ( $\le$ ) and the U.S.dollar ($) is fixed at $1.40/ $\le$ and capital flows freely between Great Britain and the U.S.Explain what the price of shares of stock in XYZ Inc.would be selling for in London if they are $80 per share in the U.S.and why?

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Definitions:

Bid-ask Spreads

The variation between the top price a buyer intends to pay (bid) and the bottom price a seller is prepared to take (ask) for an asset.

Market Equilibrium

The state in which market supply and demand balance each other, and as a result, prices become stable.

Competitive Industry

Competitive industries are characterized by three factors: (1) firms produce a product or service with very close substitutes meaning demand is very elastic, (2) firms have many rivals and no cost advantage over those rivals, and (3) the industry has no barriers to entry or exit.

Market Demand

The total volume of goods or services that consumers in a specific market are willing and able to purchase at different price levels.