Question
Please explain steps to solve this Suppose that the pound is pegged to gold at 20 per ounce and the dollar is pegged to gold
Please explain steps to solve this
Suppose that the pound is pegged to gold at 20 per ounce and the dollar is pegged to gold at $35 per ounce. This implies an exchange rate of $1.75 per pound. If the current market exchange rate is $1.80 per pound, how would you take advantage of this situation? Hint: assume that you have $350 available for investment.
Multiple Choice
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Start with $350. Buy 10 ounces of gold with dollars at $35 per ounce. Convert the gold to 200 at 20 per ounce. Exchange the 200 for dollars at the current rate of $1.80 per pound to get $360.
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Start with $350. Exchange the dollars for pounds at the current rate of $1.80 per pound. Buy gold with pounds at 20 per ounce. Convert the gold to dollars at $35 per ounce.
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both of the options
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none of the options
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