# Macroeconomics

posted by .

Explaining Exchange Rates

Suppose that under the Bretton Woods system, the dollar is pegged to gold at a rate of \$35 per ounce and the pound sterling is pegged to the dollar at a rate of \$2 = £1.

If the dollar is devalued against gold and the pegged rate is changed to \$40 per ounce, what does this imply for the exchange value of the pound? Explain your answer.

• Macroeconomics -

Think it through. 1oz = \$35 and \$2=L1, so 1oz = L17.5
Now then, if 1oz = \$40 and 1oz remains at L17.5 then \$40 = L17.5 or 40/17.5 = L1 or \$2.286 = L1

## Similar Questions

1. ### Economcis

I need some help on the following question, thanks. e = euros Suppose quotes for the dollar-euro exchange rate, E\$/e, are as follows: in New York \$1.50 per euro, and in Tokyo \$1.55 per euro. Describe how investors use arbitrage to …

I got this long question i am not sure how to do. The current dollar-pound exchange rate is \$2 per pound. A U.S. basket that costs \$100 would cost \$120 in the United Kingdom. For the next year, the Fed is predicted to keep U.S. inflation …
3. ### Economics Questions.

I am not quite sure about the following questions, is it True or False for each of the following?
4. ### macro econ

Suppose that under the Bretton Woods system, the dollar is pegged to gold at a rate of \$35 per ounce and the pound sterling is pegged to the dollar at a rate of \$2 = £1. If the dollar is devalued against gold and the pegged rate is …
5. ### Banking & Money

Couple questions here... "Under fixed exchange rates," A. The Free Market is the major determinant of the exchange rate. B. Official government transactions maintained the agreed-upon exchange rate by buying and selling foreign exchange. …
6. ### Macroeconomics

You read in a newspaper that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries and that purchasing-power …
7. ### Macroeconomics

You read in a newspaper that the nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries and that purchasing-power …
8. ### Economics

The nominal interest rate is 12 percent per year in Canada and 8 percent per year in the United States. Suppose that the real interest rates are equalized in the two countries and that purchasing-power parity holds. What can you infer …
9. ### Math

Many nations compare the value of their currency to the US dollar. On a day early in 2009, \$1 CDN (1 Canadian dollar) was worth \$0.8290 USD (US dollar). This is known as an exchange rate. On the same date \$1 USD could be used to buy …
10. ### ECON

Suppose that we are in the early days of the Bretton Woods system, and France has declared a par value for the French franc at FF6 per dollar. The allowable fluctuation band is one percent on either side of par. What is the price ceiling …

More Similar Questions