Foreign Exchange Graded Assignment | Read Chapter 11| Back to Assignment Due Fri
ID: 1114646 • Letter: F
Question
Foreign Exchange Graded Assignment | Read Chapter 11| Back to Assignment Due Friday 12.01.17 at 11:45 PM Attempts: Average: |2 6. Computing real exchange rates Aa Aa A Consider a basket of consumer goods that costs $60.00 in the United States. The same basket of goods costs 40.00 kroner in Norway. The nominal exchange rate is 3.00 kroner per dollar. The real exchange rate between U.S. and Norwegian baskets of goods is baskets of Norwegian goods per basket of U.S. goods. Now suppose the nominal exchange rate decreases from 3.00 kroner per dollar to 2.00 kroner per dollar. If the prices of the basket remain unchanged in both the United States and Norway, the real exchange rate between the U.S. and Norwegian baskets of goods will fall to baskets of Norwegian goods per basket of U.S. goods. QNA 3.16 © 2004-2016 Aplia. All rights reserved. © 2013 Cengage Learning except as noted. All rights reserved. Grade It Now Save & Continue Continue without savingExplanation / Answer
Real exchange rate = eP*/P = 3*40 / 60 = 2
New real exchange rate = 2*40/60 = 1.33
Fall in real exchange rate = 2-1.33 = 0.67 basket