The real exchange rate approach to exchange rate, Ask an Expert

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The real exchange rate approach to exchange rate determination is based on: q$/€ = R$/€ × PEU PUS or R$/€ = q$/€ × PUS PEU a) Given PUS = 115, PEU = 105, and R$/€ = $1.35 per euro, compute the real exchange rate. b) Explain what the computed real exchange rate means. c) From the above-mentioned real exchange approach, write an equation to show a formula for the percent change in the nominal exchange rate. d) Using the formula that you write in (c), predict the percent change in the nominal exchange rate R$/€ in a year if the annual percent changes for PUS, PEU , and q$/€ are 5%, 10%, and 1%, respectively. e) From results of (d), explain whether home currency ($) appreciates against foreign currency (€) in both nominal and real terms.

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91856990

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