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

Preference to non-debt creating capital flows, Preference to Non-debt Creat...

Preference to Non-debt Creating Capital Flows: The most important element of strategy has been the paradigm shift in the attitude towards inflow of capital from abroad. Capit

Indifference curves, Indifference Curves: Every consumption-leisure point,...

Indifference Curves: Every consumption-leisure point, (l; c), in the diagram is associated with a unique level of utility. The line II represents the individuals indifference curv

Determine the economic profit, Johnson Farms owns valuable farm land that a...

Johnson Farms owns valuable farm land that allows it to produce wheat at a lower cost than its competitors. The company reports large profits each year on its accounting statements

Principle of economic, You have decided to sell some goods at a local music...

You have decided to sell some goods at a local music festival. You have hired a sales stand for $500. Your cost per item is $3 and you will sell each item for $5. When you did your

Protec tionism and free trade, what is the south africas governments standp...

what is the south africas governments standpoint on international trade

What do you mean by consumption set, What do you mean by Consumption Set? ...

What do you mean by Consumption Set? Consumption Set: We notice a consumer faced along with possible consumption bundles within consumption set X. We generally assume that X

Why a high level of labor force growth is correlated, Why a high level of l...

Why a high level of labor force growth is correlated A high level of labor force growth is correlated--even though less powerfully--with a low level of output per worker. The a

Social welfare function, 2 i) Explain what are the key assumptions by the w...

2 i) Explain what are the key assumptions by the welfarist approach. ii) Define and discuss the properties of a Generalized Utilitarian social welfare function and represent it

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