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

Government expenditure equilibrium level of national income, Government Spe...

Government Spending Wagner's Law of economic activities applies to every economy. According to this law, there is both an extensive and intensive increase in government activit

Tax policy implementation, Tax Policy Implementation:   Take, e.g., the...

Tax Policy Implementation:   Take, e.g., the case of tax policy. It attempted to raise resources by a combination of direct and indirect taxes to finance a large part of increa

Indifference curve, What is indifference curve and its properties?

What is indifference curve and its properties?

Emergence and persistence of structural imbalances, Emergence and Persisten...

Emergence and Persistence of Structural Imbalances: The period broadly corresponds to the period of the Sixth Plan and the Seventh Plan. The Sixth Plan was launched when the e

Supply and demand of coffee and tea, Three factors that determine demand fo...

Three factors that determine demand for coffee and tea

Theory of perfect competition, Perfect competition has the following charac...

Perfect competition has the following characteristics: 1. Large number of firms - There are a large number of firms in the market. Due to this each firm produces a very small fr

#Demand and supply equations, Ask question # how do you formulate a demand ...

Ask question # how do you formulate a demand and supply equations when you a table of prices, quantity demanded and supplied?

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