If a proportion of traded goods (such as oil) are priced in a foreign currency, the real exchange rate becomes:
A) lower.
B) higher.
C) less responsive to changes in the nominal exchange rate.
D) more responsive to changes in the nominal exchange rate.

Question

Quizplus · Accepted Answer

When a proportion of traded goods, like oil, is priced in a foreign currency, the real exchange rate becomes less responsive to changes in the nominal exchange rate because the foreign currency price of these goods does not change with fluctuations in the nominal exchange rate.

If a Proportion of Traded Goods (Such as Oil) Are