Suppose that the exchange rate of the Indian rupee appreciates by 10% and, over the same period, inflation in India be 8% and inflation in India’s trading partners is 3%. What is the change in India’s 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 JNU SSS 2014 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.