Are real exchange rates in equilibrium at all times?

Expert Solution

No, I don't think that real exchange rates are in equilibrium because there are discrepancies between the value of two different currencies even if it is accounted for interest rate and inflation.

it can be emphasized through the implication of arbitrage as many companies are trying to take advantage of such position by entering into arbitrage position as there is different in exchange rate and different pricing of commodities in various countries, so they are trying to manufacture in one country and sell in other country in order to get advantage from discrepancies in the interest rate and the fluctuations in price so it cannot be said that the real exchange rate are completely in equilibrium state as these are all related to theoretical aspects of purchasing power theories but it has no implications in the real life as there are discrepancies involved and there is application of arbitrageurs and various individuals as well as companies are trying to gain over those discrepancies.

So it can be summarised that the real exchange rate is not in equilibrium at all Times

jeff jeffy answered 2 years ago

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