Suppose that the exchange rate of the Indian rupee appreciates by 10 percent relative to the currencies of India’s trading partners. Over the same period, inflation in India is 8 percent compared to 3 percent inflation in the trading partners. 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 2015 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.