If a bushel of wheat costs $6.40 in the United States and costs 40 pesos in Mexico and the nominal exchange rate is 10 pesos per dollar,then the real exchange rate is
A) 1.60
B) 1.25
C) .625
D) None of the above is correct.

Question

Quizplus · Accepted Answer

The real exchange rate is calculated as (Nominal Exchange Rate * Domestic Price) / Foreign Price. Here, it is (10 pesos/dollar * $6.40) / 40 pesos = 1.60.

If a Bushel of Wheat Costs $6