The real exchange rate is the nominal exchange rate, defined as foreign currency per dollar, times
A)U.S. prices minus foreign prices.
B)prices in the United States divided by foreign prices.
C)foreign prices divided by U.S. prices.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The real exchange rate is the nominal exchange rate adjusted for relative price differences between two countries. Therefore, it is calculated by dividing the nominal exchange rate (foreign currency per dollar) by the ratio of prices in the United States to foreign prices (U.S. prices divided by foreign prices). This gives the real exchange rate in terms of the relative purchasing power of each country.

The Real Exchange Rate Is the Nominal Exchange Rate, Defined