According to a recent study by economists at the International Monetary Fund, sterling's equilibrium value at the end of 1998 (when it actually bought DM2.77) was around DM2.45.

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The consensus view, expressed by either buying or selling the stock determines the market value of the security through a supply-demand equilibrium.

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These find that, when the ratio (suitably adjusted to take care of accounting discrepancies) moves far above one, equilibrium is indeed eventually restored not, however, by a surge in the replacement value of companies' assets but by a correspondingly dramatic fall in the value that Wall Street places on them.

ECONOMIST: Letter of credit | The