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maria [59]
3 years ago
10

If the nominal exchange rate (expressed as foreign currency per unit of the domestic currency) rises 5%, domestic inflation is 2

%, and foreign inflation is 3%, what is the approximate percent change in the real exchange rate?
Business
1 answer:
Murrr4er [49]3 years ago
4 0

Answer:

3.333% which is approximately 3%.

Explanation:

Real Exchange rate is the price of foreign goods compared to the price of domestic goods. This can be calculated using the following formula:

R = NER × (DPL ÷ FPL) ............................................... (1)

Where:

R = Real Exchange Rate

NER = Norminal Exchange Rate

DPL = Domestic Price Level

FPL = Foreign Price Level

When there is a change in the real exchange rate, equation (1) will expressed is follows:

ΔR = ΔNER × (ΔDPL ÷ ΔFPL) ............................................... (2)

Where:

ΔR = Change in Real Exchange Rate

ΔNER = Change in Norminal Exchange Rate = 5%

ΔDPL = Change in Domestic Price Level = Domestic Inflation = 2%

ΔFPL = Change in Foreign Price Level = Foreign Inflation = 3%

If we substitute all these values into equation (2), we can solve for ΔR as follows:

ΔR = 5% × (2% ÷ 3%)

     = 5% × 0.6667

ΔR = 3.333%

Therefore, change in the real exchange rate is 3.333% which is approximately 3%.

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The comparative balance sheets and income statement for Bingky Barnes Inc. are as follows:
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Answer:

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Statement of Cash Flows for the year ended December 31, Current Year

(using the indirect method)

Operating activities:

Net income                          $11,900

Add non-cash expenses:

Depreciation                          5,400

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Comparative balance sheets and income statement

                                                   Current Year     Prior Year    Change

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Cash                                                  $37,300       $29,400       +7,900

Accounts receivable                          32,700          28,900       +3,800

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Sales                                         $123,000

Cost of goods sold                      73,000

Other expenses                           38,100

Net income                                 $11,900

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Wages expense $20,100

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