Question

Suppose that an Apple iPhone costs ​$200 in the United​ States, ​£60 in the United​ Kingdom, and ​¥40 comma 000 in Japan. If the exchange rate between the pound and the dollar is ​$1.50 ​= £1, the real exchange rate between the pound and the dollar is __ nothing. ​(Enter your response rounded to two places​.)

Answer 1

Ans = Sol:

Apple phone cost in United States = $200

Apple phone cost in United Kingdom = $60

Nominal exchange rate between pound and dollar - $1.50 = £1, now $1 = 1/1.50 = £0.6667

Real Exchange rate = (Apple phone cost in United States x Nominal exchange rate between pound and dollar) / Apple phone cost in United Kingdom

Real Exchange rate = ($200 x £0.6667) / $60

Real Exchange rate = $2.22 per £1, 1$ = 1/2.22 = £0.45

The real exchange rate between the pound and the dollar is 0.45 pound per Dollar.