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

Quality of employment , QUALITY OF EMPLOYMENT : Productivity of Emplo...

QUALITY OF EMPLOYMENT : Productivity of Employment  In a poor country like India being employed does not by itself necessarily ensure a decent level of living. In 1999-2000 th

Market structures, illustrate and discuss the implications of various marke...

illustrate and discuss the implications of various markets structures(competitive and non-competitive) for price dertimation

Insurance - reducing risk, Insurance - Risk averse are willing to pay t...

Insurance - Risk averse are willing to pay to keep away from risk. - If cost of insurance equals expected loss, risk averse people will buy sufficient insurance to totally r

Theory of the firm, Profit maximization is theoretically the most sound but...

Profit maximization is theoretically the most sound but practically unattainable objective of business firms. In the light of this statement critically appraise the Baumol’s sales

Monopsony, what are the advantages of monopsony?

what are the advantages of monopsony?

Division of labour, Division of labour: Division of labour involves divi...

Division of labour: Division of labour involves dividing a production process into a number of smaller tasks for each task to be undertaken by a different worker. It may also be

Supply, concept of supply and the factors that affect the supply

concept of supply and the factors that affect the supply

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