Prior to the 1870s,both gold and silver were used as international means of payment and the exchange rates among currencies were determined by either their gold or silver contents.Suppose that the dollar was pegged to gold at $30 per ounce,the French franc is pegged to gold at 90 francs per ounce and to silver at 9 francs per ounce of silver,and the German mark pegged to silver at 1 mark per ounce of silver.What would the exchange rate between the U.S.dollar and German mark be under this system?

Question

Quizplus · Accepted Answer

The exchange rate between the U.S. dollar and the German mark can be determined by comparing their values in terms of silver, since the franc is pegged to both gold and silver, providing a common reference. With the franc pegged to silver at 9 francs per ounce and to gold at 90 francs per ounce, and considering the dollar is pegged to gold at $30 per ounce, we can establish that 90 francs (gold) = $30, so 9 francs (silver) = $3. Since the German mark is pegged to silver at 1 mark per ounce, 1 mark = $3, making the correct exchange rate 1 German mark = $3.

Prior to the 1870s,both Gold and Silver Were Used as International