Question: During the currency crisis of September 1992 the Bank of

During the currency crisis of September 1992, the Bank of England borrowed DM 33 billion from the Bundesbank when a pound was worth DM 2.78, or $1.912. It sold these DM in the foreign exchange market for pounds in a futile attempt to prevent a devaluation of the pound. It repaid these DM at the postcrisis rate of DM 2.50:£1. By then, the dollar: pound exchange rate was $1.782:£1.
a. By what percentage had the pound sterling devalued in the interim against the Deutsche mark? Against the dollar?
b. What was the cost of intervention to the Bank of England in pounds? In dollars?

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  • CreatedJune 27, 2014
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