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

Deficiency of vitamin a, Deficiency of Vitamin A Deficiency of Vitamin A ha...

Deficiency of Vitamin A Deficiency of Vitamin A has been found to impose adverse effects on roughly one third of the children below the age of five around the world. It has also be

Demand curve, Suppose D1 represents the demand curve for paperback novels, ...

Suppose D1 represents the demand curve for paperback novels, D2 represents the demand curve for gasoline,S1 represents the supply curve for paperback novels and S2 represents the s

Long - term periods of stagnation, Long Waves: Longer-term periods of stagn...

Long Waves: Longer-term periods of stagnation or growth in the economy, that can last for a decade or more and reflect broader changes in technology, politics, and international re

#title.inflation., inflation wide equality while deflation narrow it down d...

inflation wide equality while deflation narrow it down due in aggree distify we answer with algement?

Market supply of labour, #quesUse a graphical illustration to describe brie...

#quesUse a graphical illustration to describe briefly what the influence of each of the following would be on the market supply of labor:(a) an increase in immigration (b) more wom

Average fixed costs, how do you find the average fixed costs using total fi...

how do you find the average fixed costs using total fixed costs and total product?

Tariff, Tariff: A tariff is a tax imposed on the purchase of imports. It is...

Tariff: A tariff is a tax imposed on the purchase of imports. It is generally imposed in order to stimulate more domestic production of the product in question (rather than meeting

Ppf, negative slope on ppf represents what?

negative slope on ppf represents what?

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