If you look on the back of most books you will see a price in Euros and a US pri
ID: 1212959 • Letter: I
Question
If you look on the back of most books you will see a price in Euros and a US price. Suppose a book costs $10 US dollars and 8 Euros . The exchange rate you can get at a bank is $1 US Dollar to 0.75 Euro
What is the real exchange rate based only on the book in the example?
0.9375 or in other words the US is slightly cheaper (6.25%) than Europe
1.25 or in other words the US is 25% more expensive than Europe
.75 or in other words things in the US cost 75% of what they do in Europe
1 prices are the same in Europe and the US
0.9375 or in other words the US is slightly cheaper (6.25%) than Europe
1.25 or in other words the US is 25% more expensive than Europe
.75 or in other words things in the US cost 75% of what they do in Europe
1 prices are the same in Europe and the US
Explanation / Answer
Real exchange rate = (US cost) ÷ (E cost) = $10 ÷ $8 = 1.25.
In other word the US is {(10 – 8) ÷ 8} × 100 = 25% more expensive than E.
Answer: Second option.
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