Skip to content

Breaking a Peg: September 1992

The Bet That Could Only Cost Carry

Borrow the currency, sell it, wait. If the peg holds you pay interest. If it breaks you keep the devaluation.

10 min100 XP available4 challenges

Put these in order

Put the trade in order.

Earliest cause at the top

  1. Sell the sterling for D-marks at the market rate

    Which the Bank of England is committed to defending

  2. The peg breaks and sterling falls

    Fifteen per cent against the dollar in two weeks

  3. Hold D-marks and wait

    Earning German interest while paying British interest

  4. Borrow sterling from banks

    You now owe pounds, and you pay UK interest on them

  5. Buy back the cheaper sterling and repay the loan

    The same number of pounds now costs far fewer D-marks

Answer to continue.