Question

v91. If a U.S. dollar purchases 4 Argentinean pesos, and a gallon of milk costs $3 in the U.S. and 6 pesos in Argentina what is the real exchange rate

Answer 1

The real exchange rate is 1 dollar = 2 Argentine pesos

The exchange rate is an economic term to refer to the relationship between two currencies. The exchange rate establishes the proportion of value that exists between two currencies. For example:

• 1 Dollar is equivalent to 4 Argentine pesos

However, this rate does not represent reality in some places, there may be situations in which the proportions established by the exchange rate are not faithful to reality. For example:

• 3 Dollars or 6 Argentine pesos are used to buy 1 gallon of milk.

In this example, it is evident that in reality, the dollar is not equivalent to 4 Argentine pesos but to 2 due to the proportion of value concerning a product. Therefore, the real exchange rate is 2 Argentine pesos for every American dollar.

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