The real exchange rate is the nominal exchange rate,defined as foreign currency per dollar,times
A)U.S.prices minus foreign prices.
B)U.S.prices divided by foreign prices.
C)foreign prices divided by U.S.prices.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The real exchange rate is calculated as the nominal exchange rate, which is foreign currency per dollar, multiplied by the ratio of U.S. prices to foreign prices. This gives an indication of the relative purchasing power of the two currencies. Therefore, choice B, which is U.S. prices divided by foreign prices, is the correct option.

The Real Exchange Rate Is the Nominal Exchange Rate,defined as Foreign