The pre-1914 value of the British pound to the U.S. dollar was $4.87. (To purchase one pound, one had to pay $4.87.) Following World War I, if the dollar had traded for the pound on an open currency market, the value would have been about $3.50. However, the British government insisted that the pound trade at its pre-war value to the U.S. dollar.
Under such an arrangement:
1. Would Great Britain run annual trade surpluses or trade deficits with the USA? Why?
2. Would British goods have been more attractive or less attractive to U.S. consumers? Why?
3. Would there have been an influx of British tourists to the USA, or would there have been an increase in American tourists to Britain? Why?