Question: Question 21 (5 points) Problem 2 (5 Marks) Stanley observes the following exchange rates. USD 1 = EUR 1.100 USD 1 = GBP 0.8082 1

Question 21 (5 points) Problem 2 (5 Marks) Stanley observes the

Question 21 (5 points) Problem 2 (5 Marks) Stanley observes the following exchange rates. USD 1 = EUR 1.100 USD 1 = GBP 0.8082 1 1 GBP = EUR 1.2450 Is the GBP per EUR exchange rate in equilibrium? Show your work. (2 marks) If Stanley starts with USD 10,000, how much of a profit can he earn in US dollars by exchanging currencies given the above rates? Show your work. (2 marks) Assume the British government changed their exchange rate policy and intervened in the foreign currency market to buy or sell dollars (USD) only when the GBP/USD exchange rate fell below or climbed above a target range. What exchange rate policy is this called? (1 mark)

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