A country's domestic currency's real exchange rate,q,is defined as
B)E times P.
C)E times P .
D)(E times P )/P.
E)P/(E times P ).

Question

A country's domestic currency's real exchange rate,q,is defined as
B)E times P. 
C)E times P . 
D)(E times P )/P. 
E)P/(E times P ).

Quizplus · Accepted Answer

The real exchange rate is defined as the nominal exchange rate (E) times the ratio of the foreign price level (P*) to the domestic price level (P), where real exchange rate = E x (P*/P). Rearranging the equation, we get real exchange rate = (E x P*)/P, which is equivalent to choice D.

A Country's Domestic Currency's Real Exchange Rate,q,is Defined as