Suppose that the pound is pegged to gold at 20 per ounce and the US dollar is pegged to

gold at $35 per ounce.

a) What is the exchange rate between the dollar and the pound implied in the price of gold

in the denomination of each currency? (2 marks)

b) Suppose the current rate of $1.60 per pound. Assume that you have $350 available for

investment, detail the steps of an arbitrate strategy for taking advantage of this situation.

How much profit can you get in the denomination of the US dollar? (4 marks)