In Canada, a cup of hot chocolate costs $6. In Australia, the same hot chocolate costs $6 Australian dollars. If the exchange rate is $3 Australian dollars per Canadian dollar, what is the real exchange rate?

Question

Quizplus · Accepted Answer

The real exchange rate is calculated by comparing the cost of goods in two countries, adjusted for the exchange rate. Here, $6 CAD is equivalent to $18 AUD (since 1 CAD = 3 AUD). Therefore, 1 cup of Canadian hot chocolate can be exchanged for 3 cups of Australian hot chocolate, making the real exchange rate 2 cups of Australian hot chocolate per cup of Canadian hot chocolate.

In Canada, a Cup of Hot Chocolate Costs $6