(a) Redraw demand curve for pounds D pound and supply curve of pounds S pound as in the figure of Problem 1 and draw on it another supply curve for pounds (label it S pound ) that intersects D pound at $1 pound 1 (label the point of intersection C) (b) Assuming a flexible exchange rate system, dete...

a b With supply curve of pounds S the equilibrium exchange rate wou ...

(a) Redraw demand curve for pounds D£ and supply curve of pounds S£ as in the figure...

Question:

(a) Redraw demand curve for pounds D£ and supply curve of pounds S£ as in the figure of Problem 1 and draw on it another supply curve for pounds (label it S*£) that intersects D£ at $1 = £1 (label the point of intersection C).

(b) Assuming a flexible exchange rate system, determine the equilibrium exchange rate and equilibrium quantity of pounds with S*£.
(c) If the United States wanted to maintain a fixed exchange rate of R = 1.5 with S*£, indicate the amount of pound reserves that the U.S. central bank would gain or lose per day.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...