If the cost of a typical basket of goods in the U.S. is $100 and in France it is 400 euros, and the nominal exchange rate is 2 euro per dollar, what is the real exchange rate?
A) 0.5.
B) 1.0.
C) 1.5.
D) 2.0.

Question

Quizplus · Accepted Answer

The real exchange rate is calculated as (Nominal Exchange Rate * Price of Basket in U.S.) / Price of Basket in France = (2 * 100) / 400 = 0.5.

If the Cost of a Typical Basket of Goods in the U.S