Suppose the real exchange rate is 1 litre of Canadian gasoline per 2 litres of U.S.gasoline,1 litre of U.S.gasoline costs $0.45 U.S.,and a litre of Canadian gas costs $1.30 Canadian.What is the nominal exchange rate?
A) 0.38 U.S.dollars per Canadian dollar
B) 0.45 U.S.dollars per Canadian dollar
C) 0.69 U.S.dollars per Canadian dollar
D) 1.30 U.S.dollars per Canadian dollar

Question

Quizplus · Accepted Answer

We can start by expressing the real exchange rate in terms of U.S. dollars per Canadian dollar:
1/2 = (0.45 USD)/(1.30 CAD)

Solving for CAD/USD, we get:

CAD/USD = 1/(0.45/1.3) = 0.69

Therefore, the nominal exchange rate is 0.69 U.S. dollars per Canadian dollar.

Suppose the Real Exchange Rate Is 1 Litre of Canadian