Initially the exchange rate between the South Korean won and the Canadian dollar is 950 won per dollar.If the exchange rate rises to 1,000 won per dollar and the Canadian and South Korean price levels do not change, then in the short run the real exchange rate
A)does not change.
B)is 1,000 won per dollar.
C)falls.
D)either rises, falls, or remains the same but we don't know for sure.
E)rises.

Question

Quizplus · Accepted Answer

The real exchange rate adjusts to reflect the change in how much foreign currency can be exchanged for a unit of domestic currency. If the nominal exchange rate rises from 950 won per dollar to 1,000 won per dollar without a change in the price levels of both countries, it means that more won are needed to purchase a Canadian dollar. This effectively makes the South Korean won weaker relative to the Canadian dollar, indicating that the real exchange rate has risen, as it now costs more in local currency (won) to buy goods priced in foreign currency (dollars).

Initially the Exchange Rate Between the South Korean Won and the Canadian