Suppose that both gold and silver are used as international means of payment and the exchange rates among currencies are determined by either their gold or silver contents.Suppose that the dollar was pegged to gold at $20 per ounce,the Japanese yen is pegged to gold at 120,000 yen per ounce and to silver at 8,000 yen per ounce of silver,and the Australian dollar is pegged to silver at $5 per ounce of silver.What would the exchange rate between the U.S.dollar and Australian dollar be under this system?

Question

Quizplus · Accepted Answer

To find the exchange rate between the U.S. dollar and Australian dollar, we need a common denominator. In this case, we can use the price of silver since both currencies are pegged to it.

- 1 ounce of silver is worth $20/120,000 yen/5 AUD (depending on the currency)
- 1 USD is worth $20/120,000 yen/6 oz of silver (since the U.S. dollar is pegged to gold)
- 1 AUD is worth 5/6 oz of silver (since the Australian dollar is pegged to silver)

Using these conversion rates, we can calculate the exchange rate between USD and AUD:

1 USD = ($20/6 oz of silver) / (5/6 oz of silver) AUD 
1 USD = $3.75 AUD

Therefore, the correct answer is (C) $1 U.S.= $3.75 Australian.

Suppose That Both Gold and Silver Are Used as International