A particular brand of toothpaste costs 4 British pounds in London.The nominal exchange rate is .80 and the real exchange rate is about 1.16.These numbers imply that the U.S.price of the same toothpaste is about
A)$5.79
B)$4.29
C)$3.70
D)$2.76

Question

Quizplus · Accepted Answer

The real exchange rate is calculated as (Nominal Exchange Rate * Foreign Price) / Domestic Price. Rearranging to find the U.S. price: Domestic Price = (Nominal Exchange Rate * Foreign Price) / Real Exchange Rate = (0.80 * 4) / 1.16 = $5.79.

A Particular Brand of Toothpaste Costs 4 British Pounds in London.The