The next questions refer to the following.
Suppose the nominal Canadian - US exchange rate is C$1 = US$0.65 (so that one Canadian dollar buys 65 US cents), and the Canadian price level is twice as high as the US price level.
-The real value of C$1 in the US is then
A) US$0.65
B) US$0.77
C) US$1.30
D) US$1.40
E) US$1.54

Question

Quizplus · Accepted Answer

The real value of a currency is its purchasing power in terms of goods and services. In this case, the Canadian price level is twice as high as the US price level, so C$1 will buy half as many goods and services in Canada as it will in the US. Therefore, the real value of C$1 in the US is US$0.65 / 2 = US$0.325.

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