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3. Denmark retains its own currency while being a Eurozone member. Danish Krone (DKK) is pegged to Euro. Current exchange rate for DKK is 7.5 DKK per EUR. If Danish government decides to switch to a floating currency regime, then the exchange rate will go up to 10 DKK per EUR. Now consider Rosencrantz and Guildenstern who run an importing company in Helsingr. They have signed a firm contract to purchase 50 units of furniture from Germany in the next two months. Each unit is worth 150 EUR. Suppose that the next month Denmark decides to switch to a floating currency regime. a) What does pegged exchange rate mean? b) Plot the J-curve (in DKK) if in three months from now Rosencrantz and Guildenstern will purchase only 30 units of furniture. 3. Denmark retains its own currency while being a Eurozone member. Danish Krone (DKK) is pegged to Euro. Current exchange rate for DKK is 7.5 DKK per EUR. If Danish government decides to switch to a floating currency regime, then the exchange rate will go up to 10 DKK per EUR. Now consider Rosencrantz and Guildenstern who run an importing company in Helsingr. They have signed a firm contract to purchase 50 units of furniture from Germany in the next two months. Each unit is worth 150 EUR. Suppose that the next month Denmark decides to switch to a floating currency regime. a) What does pegged exchange rate mean? b) Plot the J-curve (in DKK) if in three months from now Rosencrantz and Guildenstern will purchase only 30 units of furniture

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