If the nominal USD/EUR exchange increased 9% over the last year, Eurozone CPI increased by 1.88% and US CPI increased by 1.02%, then: A. the real exchange rate will be lower by approximately 9.86%. B. the real exchange rate will be higher by approximately 9.08%. C. the real exchange rate will be higher by approximately 9.86%.

Are there any ways to remember this kind of formula?

The correct answer is Option C. The real exchange rate can be approximated by:%ΔSd/f + CPIf – CPId or by %ΔSP/B + CPIP – CPIBThe change in the real exchange rate would then be approximately 9% + 1.88% - 1.02% ≈ 9.86%.

Question Of The Week: Level 1 - Macroeconomics (2) - CFA Level 1

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This topic has 2 replies, 2 voices, and was last updated Apr-2010:36 am by pinkmonkey.

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- MarkMeldrum
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  10 Apr 2020 at 6:46 am
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  If the nominal USD/EUR exchange increased 9% over the last year, Eurozone CPI increased by 1.88% and US CPI increased by 1.02%, then:
  - A. the real exchange rate will be lower by approximately 9.86%.
  - B. the real exchange rate will be higher by approximately 9.08%.
  - C. the real exchange rate will be higher by approximately 9.86%.
- pinkmonkey
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  - Undecided
  22 Apr 2020 at 10:36 am
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  3
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  Are there any ways to remember this kind of formula?
- MarkMeldrum
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  - Undecided
  13 Apr 2020 at 6:16 pm
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  2
  ::
  The correct answer is Option C.
  
  The real exchange rate can be approximated by:
  
  %ΔSd/f + CPIf – CPId or by %ΔSP/B + CPIP – CPIB
  
  The change in the real exchange rate would then be approximately 9% + 1.88% – 1.02% ≈ 9.86%.
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