Posted: January 17th, 2016

If the exchange rate between French Francs (FF) and US Dollars ($) is FF2/$1, would there be arbitrage opportunities? Is the exchange rate of FF2/$1 correct or not?

b. Suppose that the United States is on a gold standard and the US authorities have committed to exchange an ounce of gold for $35. Suppose that France is on gold standard too and French authorities have committed to exchange an ounce of gold for 60 French Francs. If the exchange rate between French Francs (FF) and US Dollars ($) is FF2/$1, would there be arbitrage opportunities? Is the exchange rate of FF2/$1 correct or not?