Question 1: This question has two parts. Students must show their workings. Part A During the currency crisis of September 1992, the Bank of England borrowed DM 33 billion from the Bundesbank when a pound was worth DM 2.78 or $1.912. It sold these DM in the foreign exchange market for pounds in a futile attempt to prevent a devaluation of the pound. It repaid these DM at the post-crisis rate of DM 2.50:21. By then, the dollar: pound exchange rate was $1.782:1.| By what percentage had the pound sterling devalued in the interim against the Deutsche mark as well against the dollar? Part B Assume annual inflation rates in the US and Australia are 6% and 4% respectively, and the spot rate is US$0.75 per AUD (indirect quote). What is the value of AUD in 1 and 2 years? Question 1: This question has two parts. Students must show their workings. Part A During the currency crisis of September 1992, the Bank of England borrowed DM 33 billion from the Bundesbank when a pound was worth DM 2.78 or $1.912. It sold these DM in the foreign exchange market for pounds in a futile attempt to prevent a devaluation of the pound. It repaid these DM at the post-crisis rate of DM 2.50:21. By then, the dollar: pound exchange rate was $1.782:1.| By what percentage had the pound sterling devalued in the interim against the Deutsche mark as well against the dollar? Part B Assume annual inflation rates in the US and Australia are 6% and 4% respectively, and the spot rate is US$0.75 per AUD (indirect quote). What is the value of AUD in 1 and 2 years