Problem #3. Suppose the official price of 1 ounce of gold in the US is 21.60 dollars and the official price of gold in the UK is 3.6 pounds sterling. 3A. Assuming no transport costs, the value of 1 pound sterling is US dollars. Now suppose there are transport costs for shipping gold from one market to another. The value of one currency in terms of another will no longer be constant; instead, it can fluctuate within a range. These we referred to as gold points. If the exchange rate should fall outside of this range, gold will be shipped from one market to another. Assume that it costs 5% of the purchase price (paid by the buyer) to ship gold from one market to another. 3B. The lower value of 1 pound sterling in terms of the dollar in this range will be and the

Problem #3. Suppose the official price of 1 ounce of gold in the US is 21.60 dollars and the official price of gold in the UK is 3.6 pounds sterling. 3A. Assuming no transport costs, the value of 1 pound sterling is US dollars. Now suppose there are transport costs for shipping gold from one market to another. The value of one currency in terms of another will no longer be constant; instead, it can fluctuate within a range. These we referred to as gold points. If the exchange rate should fall outside of this range, gold will be shipped from one market to another. Assume that it costs 5% of the purchase price (paid by the buyer) to ship gold from one market to another. 3B. The lower value of 1 pound sterling in terms of the dollar in this range will be and the

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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