(Solution) - Suppose Sue Flay a U S investor purchases British pounds worth -(2025 Original AI-Free Solution)

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Academic Level: Undergrad. (yrs 3-4)

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Pages: 5 Words: 1375

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Suppose Sue Flay, a U.S. investor, purchases British pounds worth $1.5 million in the foreign exchange market. What effect does this transaction have on the U.S. and British monetary bases and M2 money supplies? Assume the spot exchange rate is $1.50/£, the pound floats against the dollar, and the transaction is sufficiently small so that the exchange rate does not change.