By how much should it devalue or revalue its currency

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Reference no: EM131221914

In 2020, Boversia fixes its exchange rate at 0.5 dollars per bover. From 2020 to 2025, Boversia experiences inflation of 5 percent per year, while U.S. inflation is 2 percent per year.

a. By how much does Boversia's real exchange rate change from 2020 to 2025?

b. If Boversia wants to return the real exchange rate to its 2020 level, by how much should it devalue or revalue its currency in 2025?

Reference no: EM131221914

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