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

Cost curves, If the average variable cost curve is horizontal, what is the ...

If the average variable cost curve is horizontal, what is the shape of the short-run marginal cost curve? What shape would the short-run average cost curve be?

Dialectic inquiry, Dialectic Inquir y It is a technique for gr...

Dialectic Inquir y It is a technique for group decision making in which members are forced to "debate" both sides of a matter. Dialectic inquiry forces consideration o

Define debt, Q. Define Debt? Debt:Total amount of money owed by a compa...

Q. Define Debt? Debt:Total amount of money owed by a company, individual or other organization to banks or other lenders is their debt. It represents accumulated total of past

Free trade, is country beter off with ban on imports?

is country beter off with ban on imports?

Supply and demand, Explain the meaning of the statement "coffee and tea are...

Explain the meaning of the statement "coffee and tea are close substitutes".

Favor of selling inventories, If producers expect future prices to enhance,...

If producers expect future prices to enhance, current supply will decline in favor of selling inventories at higher prices later.  In other words, supply will reduce (a shift to th

Features of monopolistic competition, Features of monopolistic competition:...

Features of monopolistic competition: Large number of firms in the industry. There are many small firms each supplying only a small share of the total market output. Hence, no

What are the three basic economic questions, What are the "three basic econ...

What are the "three basic economic questions" that economists often address when examining how much economic output is formed? The three basic questions are: a) what is prod

Marginal revenue productivity theory, Question 1: i) Derive and explain...

Question 1: i) Derive and explain Harberger's (1954) welfare loss estimates of monopolizing a perfectly competitive firm. ii) What are the roles of advertising? Can it lead

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