Question

If the nominal exchange rate between the American dollar and the Canadian dollar is 0.70, it means that one American dollar is worth 70 Canadian cents.

True or False -- Show your work!

Answer 1

Solution:

When the statement says nominal exchange rate between currency A and currency B, it does not clearly indicate that we are expressing which currency in which terms.

For example, here itself when exchange rate between America dollar and Canadian dollar is 0.70, it might also mean that one Canadian dollar is worth 70 American cents. Since, American dollar is stronger than Canadian dollar, that is, America dollar has relatively higher value, the real expression is indeed:

1 Canadian dollar = 0.70 American dollar,

And not, 1 American dollar = 0.70 Canadian dollar (you can verify on internet as well)

So, this statement is False.