Suppose massive capital outflows cause nominal exchange rate to depreciate by 10%. At the same time, foreign and domestic price levels rise by 5% and 20% respectively. What will be the approximate change in real exchange rate?
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Balance of payments and exchange rates has come up 120 times in 7 exams since 2007.
This question is on Exchange rate concepts, part of Balance of payments and exchange rates in International Economics.
Nominal, real and effective exchange rates and how they are quoted and converted.
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Question from the CUET-PG 2023 Shift 2 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.