Asked by Zahra Al-Radwan on May 05, 2024
Verified
Suppose a bottle of wine costs 20 euros in France and 25 dollars in the United States. If the exchange rate is .80 euros per dollar, what is the real exchange rate?
Real Exchange Rate
A measure of the value of one currency against another, adjusted for inflation differences between the two countries.
Exchange Rate
The rate at which one currency can be exchanged for another, typically used in international trade and finance.
- Distinguish between nominal and real exchange rates and their computations.
Verified Answer
-B
-Suzilawati binti Uyob (UC)May 11, 2024
Final Answer :
The real exchange rate = nominal exchange rate × Domestic Price/Foreign price = .80 euros per dollar × 25 dollars/20 euros = 1.
Learning Objectives
- Distinguish between nominal and real exchange rates and their computations.