4) Which of the following expressions represents the real exchange rate ()P A) E

Question

4) Which of the following expressions represents the real exchange rate ()P A) E/P B) EP /P C) EP D) EP/P 5) Suppose you have one U.S. dollar with which you wish to purchase U.K. (one-year) bonds in period t Which of the following expressions represents the amount of U.S. dollars you will receive in one year (i.e., period t + 1) from purchasing UK bonds in period t? A)i B) 1 +i Q +E+1/E D) (I + i*)Eq/Eet+1 6) Which of the following, all else fixed, will cause the real exchange rate to decreasei? A) a nominal appreciation B) an increase in the foreign price level C) an increase in the domestic price level D) all of the above

Explanation / Answer

4. (d) EP/P*

It means Real exchange rate calculated by the ratio between net exchange rate (E) and price level in home country(P) and the price level of foreign country.

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