Question
The European Exchange Rate Mechanism (ERM) is based on the concept of fixed currency exchange rate margins, but with exchange rates variable within those margins.
The European Exchange Rate Mechanism (ERM) is based on the concept of fixed currency exchange rate margins, but with exchange rates variable within those margins. This is also known as a semi-pegged system. Before the introduction of the euro, exchange rates were based on the European Currency Unit (ECU), the European unit of account, whose value was determined as a weighted average of the participating currencies. Suppose the central rates within the ERM for the French franc and DM are FF 6.90403/ECU 1 and DM 2.05853/ECU 1, respectively. What is the cross-exchange rate between the franc and the mark?
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