If the exchange rate is .70 euro per dollar,the price of an MP3 player in Paris is 150 euros and the price of an MP3 player in the U.S.is $150,then what is the real exchange rate?
A)1/.70 French MP3 players per U.S.MP3 player
B)1 French MP3 players per U.S.MP3 player
C).70 French MP3 players per U.S.MP3 player.
D)None of the above are correct.

Question

Quizplus · Accepted Answer

To find the real exchange rate, we need to compare the prices of the same item in both currencies. We know that the price of an MP3 player in Paris is 150 euros, and the price of the same MP3 player in the U.S. is $150. To compare these prices, we need to convert one currency to the other using the given exchange rate of .70 euro per dollar:

150 euros = 150/.70 dollars

Simplifying gives us:

150 euros = approximately 214.29 dollars

Now we can compare the prices in dollars:

$150 < $214.29

This means that the euro is stronger than the dollar, and that you get more value for your money in the U.S. Therefore, the real exchange rate is the number of French MP3 players you can buy with one U.S. MP3 player. Since the U.S. price is lower, you can buy more French MP3 players with one U.S. MP3 player. Therefore:

1 U.S. MP3 player = 0.70 French MP3 players

So the answer is C: .70 French MP3 players per U.S. MP3 player.

If the Exchange Rate Is