Suppose that a bushel of wheat costs $5 in Canada and costs 50 pesos in Mexico.If the nominal exchange rate is 30 pesos per dollar,what is the real exchange rate?
A) 1 / 3
B) 1
C) 3
D) 10

Question

Quizplus · Accepted Answer

The real exchange rate is calculated as (Nominal exchange rate * Price in domestic currency) / Price in foreign currency. Here, it is (30 pesos/dollar * 5 dollars) / 50 pesos = 3.

Suppose That a Bushel of Wheat Costs $5 in Canada