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Chapter 33: Q. 12 (page 753)

Suppose that under a gold standard, the U.S. dollar is pegged to gold at a rate of 535 per ounce and the pound sterling is pegged to gold at a rate of $17.50 per ounce. Explain how the gold standard constitutes an exchange rate arrangement between the dollar and the pound. What is the exchange rate between the U.S. dollar and the pound sterling?

Short Answer

Expert verified

With the Us dominion greenback or the major currencies, the converting price becomes0.5poundsterling.

Step by step solution

01

Introduction

A translation index is a function about how one asset is transferred for someone in the finance sector. National currencies are the most prevalent, but they can also be subnational, as in Hong Kong, or supranational, as with the euro.

02

Given Information

A rate of 535per ounce and the pound sterling is pegged to gold at a rate of $17.50per ounce.

03

Explanation

Funds theories is designed to be more than an interest expenses over currencies with commodities. This shows that the country uses has rate of exchange, for which the state decides the dollar's value in bullion.

Approximate trade balance against it's currency or the currency Henderson:

He gained also as a reward.

$35=1ounce

£17.50=1ounce

S35=£17.50

1USD=17.5035

=0.5poundsterling

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Most popular questions from this chapter

Take a look at Figure 33-6. Suppose that the preferences of most British residents alter toward purchasing more downloaded online streaming videos of Hollywood movies distributed by U.S. firms. What will happen to the equilibrium dollar price of the pound, and why? Does the dollar appreciate or depreciate in relation to the pound?

Explain how the following events would affect the market for South Africa's currency, the rand, assuming a floating exchange rate.

a. A rise in U.S. inflation causes many U.S. residents to seek to buy gold, which is a major South African export good, as a hedge against inflation.

b. Major discoveries of the highest-quality diamonds ever found occur in Russia and Central Asia, causing a significant decline in purchases of South African diamonds.

Suppose that during a recent year for the United States, the current account balance was -\(0.5trillion, and the net acquisitions of financial assets by U.S. residents and government entities was +\)50.1trillion.

a. What was the balance on the financial account during the year?

b. What was the net incurrence of financial liabilities by U.S. residents and government entities during the year?

Understand how policymakers can go about attempting to fix exchange rates

Suppose that during a recent year for the United States, merchandise imports were \(2trillion, unilateral transfers were a net outflow of \)50.2trillion, service exports were \(0.2trillion, service imports were \)0.1trillion, and merchandise exports were $1.4trillion.

a. What was the merchandise trade deficit?

b. What was the balance on goods and services?

c. What was the current account balance?
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