Given the Canadian price level P, the foreign country price level P*, and the nominal exchange rate E in foreign currency per Canadian dollar, the real exchange rate RER equals
A)E × (P*/P).
B)(P/P*)/ E.
C)P × (E/P*).
D)P × E × P*.
E)E × (P/P*).

Question

Quizplus · Accepted Answer

The real exchange rate (RER) is calculated as the nominal exchange rate (E) multiplied by the ratio of the domestic price level (P) to the foreign price level (P*), which is represented by the formula E × (P/P*).

Given the Canadian Price Level P, the Foreign Country Price