On June 14, 2001, Domingo Cavallo, Argentina’s treasury secretary announced a new exchange rate policy designed to stimulate Argentina’s slumping economy. Under the new policy, exporters and importers would be able to convert between dollars and pesos at an exchange rate that was an average of the dollar and the euro exchange rates, that is, P1 = $0.50 + €0.50. At that time, the euro was trading at $0.85.

a. How many pesos would an exporter receive for one dollar under the new system?

b. How many dollars would an importer receive for one peso under the new system?