The exchange rate is 1.5 Bosnian markas per U.S.dollar.The price of a refrigerator in Bosnia is 1,200 markas while in the U.S.it is $1,000.The real exchange rate is
A)9/5
B)5/4
C)4/5
D)None of the above are correct.

Question

Quizplus · Accepted Answer

To find the real exchange rate, we need to compare the relative price of the refrigerator in both countries. The price of the refrigerator in Bosnia is 1,200 markas, which is equivalent to $800 using the exchange rate (1,200/1.5). Therefore, the relative price of the refrigerator in Bosnia compared to the U.S. is 800/1000 = 4/5. This means that the real exchange rate is 4/5, which is equivalent to 5/4 when flipped. Therefore, the best choice is B, 5/4.

The Exchange Rate Is 1