Macroeconomics - Lecture2b Real exchange rates

Question	Answer
What is Nominal exchange rates (S)	The price of a unit of domestic currency in terms of a foreign currency
Faults with nominal exchange rate	Nominal exchange rates tell us nothing how about how much one is able to purchase with either currency. But real exchange rates shows us the ratio of the price of the domestic goods to the price
What are real exchange rates (sigma sign)	Real exchange rates shows us the ratio of the price of the domestic goods to the price of foreign goods when expressed in the same currency sigma sign represents this
Image: Real Exchange Rates (binary/octet-stream)	Formula for real exchange rate P - domestic goods using domestic currency P* - price of foreign goods in foreign currency S - Nominal exchange rate
Image: Efficient Exchange Rates (binary/octet-stream)	This is efficient exchange rates and is computed using a number of partnering countries

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