Question

Suppose that a bushel of American rice sells for $100

and a bushel of Japanese rice sells for 16,000 yen. If the

nominal exchange rate is 80 yen per dollar, then what is

the real exchange rate between American and Japanese

rice?

Answer 1

Answer : Real exchange rate= nominal exchange rate* Domestic price/Foreign price

Nominal =1$$=80 ¥$

Price of America rice$=100/¥$

Price of Japanese $=16000 /¥$

Real exchange rate $=80/¥$

Real exchange rate =

$80¥$ /1 $* 100/Rice (Price) /16000/Japanese

Rice (Price)

=8000 /Us Rice(Price) /16000 /Japanese Rice

(Price)

=8000 /Us Rice (Price) *Japanese Rice (Price)

/16000

= 0.5 Japanese Rice (Price) /Us Rice (Price)