Question

QUESTION 2

1. A real exchange rate can be thought of as,

	a.	the rate at which two countries' goods trade against each other
	b.	a comparison of the actual nominal exchange rate versus the purchasing power parity predicted nominal exchange rate
	c.	neither A nor B
	d.	both A and B

QUESTION 3

1. Suppose the Thai baht -- U.S. dollar nominal exchange rate is 30 bahts to one dollar. According to (absolute) purchasing power parity, this means that what 1 baht can buy in Thailand is what 30 dollars can buy in the U.S.

True

False

QUESTION 4

1. Compared to a neutral strength currency,

	a.	having a strong currency tends to cause more exports for a country and having a weak currency tends to cause more exports for a country
	b.	having a strong currency tends to cause more exports for a country and having a weak currency tends to cause more imports for a country
	c.	having a strong currency tends to cause more imports for a country and having a weak currency tends to cause more exports for a country
	d.	having a strong currency tends to cause more imports for a country and having a weak currency tends to cause more imports for a country

Answer 1

Let me answer the question one by one.

Question 1

The answer is (a) the rate at which two countries' goods trade against each other. It is because real exchange rate refers to relative price of goods of two countries or it can be defined as the rate at which the two countries accept to trade the goods.

Question 2

The answer is False, because it is clearly mentioned that 1$=30 bahts. In USD, 1 baht would be around 0.03

Question 3

The answer is (c). It is because

Having a strong currency means that the currency value is high or the purchasing power is high and the country only needs to pay less for the products purchased from foreign countries which in the end leads to more imports.

However having a weaker currency leads to less money value or less purchasing power. But on the other hand, the other country is having a strong currency and they will import more products, thus increasing imports for the home country.