If the price level in the U.S. is 120, the price level in South Africa is 140, and the nominal exchange rate is 7 South African rands per dollar, then the real exchange rate is
A) 8.4 South African goods per U.S. good.
B) 1.4 South African goods per U.S. good.
C) 6 South African goods per U.S. good.
D) 9.8 South African goods per U.S. good.

Question

Quizplus · Accepted Answer

Real exchange rate = (Nominal exchange rate x Domestic price level) / Foreign price level
= (7 x 120) / 140
= 6 South African goods per U.S. good.

If the Price Level in the U