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

Microeconomics, Consider the market for purple magic markers. The demand fo...

Consider the market for purple magic markers. The demand for purple magic markers is perfectly elastic and the supply is upward sloping. If sellers of purple magic markers are taxe

Labour market, Use a graphical illustration to describe briefly what the in...

Use a graphical illustration to describe briefly what the influence of each of the following would be on the market supply of labor:(a) an increase in immigration (b) more women en

Explain the concept of budget multiplier, Problem 1: a. Use the circula...

Problem 1: a. Use the circular flow model to explain the concepts of injections and withdrawals. b. Explain the concept of budget multiplier. c. Using the concept of mult

Separate administrative set-up for exports, Separate Administrative Set-up ...

Separate Administrative Set-up for Exports:   It may be worth examining the setting up of Foreign Trade Board, similar to what obtains in Japan (JETRO) and South Korea (KETRO)

A potato chip industry, run a s monopoly how will this benefit stakeholders...

run a s monopoly how will this benefit stakeholders involved, such as the goverment, businesses, and consumers?

What is utility maximization according to consumer behavior, What is utilit...

What is utility maximization according to consumer behavior? Consumer Behavior: Utility Maximization A foundational hypothesis onto individual behavior within modern econ

Rational producer, would a rational producer be concerned with the average ...

would a rational producer be concerned with the average or marginal product of an input in dec

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