West Germany’s Undervalued Exchange Rate

West Germany’s Undervalued Exchange Rate

The Bundesbank, the German central bank, was committed under the Bretton Woods system to defending a par exchange rate of $0.27 per deutsche mark (DM). Because this exchange rate was lower than what the equilibrium market exchange rate would have been, there was a shortage of DMs in the foreign exchange market. The Bundesbank had to supply DMs equal to the shortage in exchange for dollars. The shortage in the figure is equal to 1 billion DMs per day.

‹#› of 37

Copyright © 2015 Pearson Canada Inc.


LO App


Capital controls Limits on the flow of foreign exchange and financial investment across countries.

Figure 19A-3

Destabilizing Speculation against the Deutsche Mark, 1971

In 1971, the par exchange rate of $0.27 = 1 deutsche mark was below the equilibrium exchange rate of $0.35 = 1 deutsche mark. As investors became convinced that West Germany would have to revalue the deutsche mark, they increased their demand for marks from D1 to D2. The new equilibrium exchange rate became $0.42 = 1 deutsche mark. This increase in demand raised the quantity of marks the Bundesbank had to supply in exchange for dollars to defend the par exchange rate from 1 billion deutsche marks to 2 billion deutsche marks per day.

‹#› of 37

Copyright © 2015 Pearson Canada Inc.


LO App

Get Professional Assignment Help Cheaply

fast coursework help

Are you busy and do not have time to handle your assignment? Are you scared that your paper will not make the grade? Do you have responsibilities that may hinder you from turning in your assignment on time? Are you tired and can barely handle your assignment? Are your grades inconsistent?

Whichever your reason may is, it is valid! You can get professional academic help from our service at affordable rates. We have a team of professional academic writers who can handle all your assignments.

Our essay writers are graduates with diplomas, bachelor's, masters, Ph.D., and doctorate degrees in various subjects. The minimum requirement to be an essay writer with our essay writing service is to have a college diploma. When assigning your order, we match the paper subject with the area of specialization of the writer.

Why Choose Our Academic Writing Service?

  • Plagiarism free papers
  • Timely delivery
  • Any deadline
  • Skilled, Experienced Native English Writers
  • Subject-relevant academic writer
  • Adherence to paper instructions
  • Ability to tackle bulk assignments
  • Reasonable prices
  • 24/7 Customer Support
  • Get superb grades consistently

How It Works

1.      Place an order

You fill all the paper instructions in the order form. Make sure you include all the helpful materials so that our academic writers can deliver the perfect paper. It will also help to eliminate unnecessary revisions.

2.      Pay for the order

Proceed to pay for the paper so that it can be assigned to one of our expert academic writers. The paper subject is matched with the writer’s area of specialization.

3.      Track the progress

You communicate with the writer and know about the progress of the paper. The client can ask the writer for drafts of the paper. The client can upload extra material and include additional instructions from the lecturer. Receive a paper.

4.      Download the paper

The paper is sent to your email and uploaded to your personal account. You also get a plagiarism report attached to your paper.



order custom essay paper