Percentage change in the real exchange rate

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Reference no: EM13230585

Suppose the direct quote of the nominal exchange rate between U.S. dollar and Euro increases by 2% from the U.S. perspective. The inflation rate in the U.S. is 2% and the inflation rate in France is 3%.

a. What is the percentage change in the real exchange rate between US dollar and Euro? Please provide the formula and at least one step of calculation for full credit.

b. Is this a currency depreciation or appreciation in the U.S.? Why?

Reference no: EM13230585

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