Differentiate between nominal and real exchange rate, Microeconomics

Assignment Help:

Differentiate between nominal and real exchange rate. 

Nominal exchange rate is the rate which actually prevails in the foreign swap market. The real exchange rate is the rate which is adjusted to relative prices (price of foreign good separated by price of domestic good). Assume, in foreign exchange market, the nominal exchange rate is $/ Rs.2.00. That means we have to pay Rs.2.00 for $ 1.00 in foreign exchange market. When we talk about real exchange rate, then we adjust the nominal exchange rate with relative price ratio of foreign to domestic good. Now assume that the relative price ratio of foreign to domestic good is $10/ Rs.15. Therefore the real exchange rate is equal to Pf/Pd * Nominal exchange rate, i.e. 10$/15Rs * $/2Rs. 

 


Related Discussions:- Differentiate between nominal and real exchange rate

Calculate price elasticity of demand, 1. Consider the consumption decisions...

1. Consider the consumption decisions of R.B. Turbo, a new student at Teachers College, Columbia University. Ms. Turbo has only available $1,000 in monthly income to spend on food

#title., if the marginal production of labor is rising, is the marginal cos...

if the marginal production of labor is rising, is the marginal cost of production rising or falling? Briefly explain

How have falling commodity prices affected many countries, How have falling...

How have falling commodity prices affected many developing countries? Definition of commodities; raw material like copper, iron and bauxite; and agricultural goods like rice an

Gdp, how to write an overall introduction about gdp?

how to write an overall introduction about gdp?

Economic Question , 4) The prevention of major swings in economic activity ...

4) The prevention of major swings in economic activity can be handled most easily by the A. household sector B. business sector C. financial sector

Consumer choice - revealed preferences, Consumer Choice   * Decision mak...

Consumer Choice   * Decision making & Public Policy - Selecting from a non matching and matching grant to fund police expenditures

The market supply of labour, graphical illustration describing the influenc...

graphical illustration describing the influence of an increase in immigrants on the market supply of labour

Policy measures for private sector investment, Policy Measures for Private ...

Policy Measures for Private Sector Investment Policy measures aimed at reforming education financing was made with two major propositions, viz. (i) Improving the efficiency

Central problem of economy, explain the central problem of economy with p...

explain the central problem of economy with production possibility curve?

Factors that calculate price elasticity of demand, Factors that calculate p...

Factors that calculate price elasticity of demand: The proportion of Income spent on the Commodity If the price of a good is relatively low such the expenditure on it is a

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd