Question

Suppose the real exchange rate of 105 Japanese yen to the dollar moves to 115 yen to the dollar. The dollar has _________________, making Japanese goods __________ expensive for Americans.

Answer 1

Suppose the real exchange rate of 105 Japanese yen to the dollar moves to 115 yen to the dollar. The dollar has appreciated, making Japanese goods less expensive for Americans.

The nominal exchange rate (the price in dollars of one euro, for example) and the ratio of prices in the two nations are the ingredients that make up the real exchange rate (RER) between two currencies.

The cost of imported goods is significantly influenced by exchange rates. You will typically spend much more for international goods when your own currency is weaker. As a corollary, a stronger home currency may somewhat lower the cost of imports.

Learn more about real exchange rate here

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