Question 1
Figure 19-8
Refer to Figure 19-8. The equilibrium exchange rate is originally at A, $1.25/euro. Suppose the European Central Bank pegs its currency at $1.00/euro. Speculators expect that the value of the euro will rise and this shifts the demand curve for euro to D
2. If the European Central Bank abandons the peg, the equilibrium exchange rate would be
Question 2
Figure 19-10
Refer to Figure 19-10. Under the Bretton Woods System of exchange rates, if the par exchange rate was $4 per pound in the figure above, then which of the following is true?
Answer 1
$1.50/euro.Answer 2
The Bank of England would have to buy 0.7 million pounds per day with dollars.