1. In 1990 The United Kingdom joined the European Rate Mechanism (designed for member countries to maintain stable exchange rate to facilitate trade) and pegged the British Pound Sterling to the German Deutch Mark: m/ 2.95. At the same time, the UK's inflation rate was more than double that of Germany and the United States.

Over the next couple of years, rising prices lowered the Pound's value at home, but purchase by the Bank of England maintained the Exchange rate commitment.

Use the simply-demand figure, for the market for POUNDS, to show the effects of this waning demand for ( or rising supply of) Pounds and the banks response (HINT: you can think about the Bank's response as trying to maintain a binding price floor).