Question

Use the information in the chart to calculate the real exchange rate between the U.S. dollar and the Indian rupee. Round to the nearest whole number. 2014 2015 2016 rupees/dollar 57 62 72 U.S. price index 99.5 100.1 101.1 Indian price index 108 117 128 What was the real exchange rate in 2014

Answer 1

Answer: 52.51 rupees/dollar

Explanation:

The real exchange rate attempts to account inflation in the countries being compared by using prices in the exchange rate.

The formula for calculating it is;

Real exchange rate = Nominal exchange rate *(Price index of domestic country/Price index of foreign country)

Real exchange rate in 2014 = 57*(99.5/108)

= 52.51 rupees/dollar