Which of the following is a feature of the 'Real Exchange Rate'?
A. It is independent of price levels
B. It is determined only by interest rates
C. It is simply the nominal exchange rate
D. It is the nominal exchange rate adjusted for relative price levels between countries
Answer: Option D
Solution (By JKSSB Mock Tests)
The real exchange rate is defined as the nominal exchange rate multiplied by the ratio of foreign to domestic price levels (or the relative price of foreign to domestic goods).
Explanation:
India adopted a Flexible Inflation Targeting framework in 2016, with CPI inflation as the nominal anchor and a target of 4% with a tolerance band of ±2%.
Explanation:
The J-curve effect describes the pattern where a currency depreciation first worsens the trade balance (due to existing contracts) before improving it as quantities adjust.
No comments yet. Be the first to start the discussion!