If the United States pegs the value of the dollar to gold at a parity rate of $35 per ounce, and British officials peg the value of the pound to gold at a rate of £10, then the implied rate of exchange between the dollar and the pound (dollar/pound) is:

Question

Quizplus · Accepted Answer

To determine the implied rate of exchange, we need to compare how much of each currency can be exchanged for a fixed amount of gold.

For the US: 
$35 per ounce of gold

For the UK: 
£10 per ounce of gold

To determine the implied rate of exchange between the dollar and the pound:

$35 per ounce of gold / £10 per ounce of gold = $3.50 per £1

Therefore, the implied rate of exchange between the dollar and the pound is 3.5 (or $3.50 per £1).

If the United States Pegs the Value of the Dollar