Country B uses pounds, and Country A uses euros as their currency. In 2019 one pound trades for €1.30. In 2020 one pound
Posted: Thu May 19, 2022 8:57 am
Country B uses pounds, and Country A uses euros as their
currency. In 2019 one
pound trades for €1.30. In 2020 one pound trades for €1.20.
Page 3 of 5
v) Express the nominal exchange rate in 2019 and 2020 in units
of pounds
per euro. What happened to the euro from 2019 to 2020? [10
marks]
vi) In 2019 in Country B the cost of a basket of goods containing 8
units of
food and 2 units of drink (i.e. the basket we used to calculate the
CPI in
part ii)) is £110. Calculate the real exchange rate for 2019.
[10 marks]
In 2020, the cost of the basket in Country B increases to £130.
What
happens to the real exchange rate? Does this effect net exports in
Country
A and/or in Country B? Explain.
currency. In 2019 one
pound trades for €1.30. In 2020 one pound trades for €1.20.
Page 3 of 5
v) Express the nominal exchange rate in 2019 and 2020 in units
of pounds
per euro. What happened to the euro from 2019 to 2020? [10
marks]
vi) In 2019 in Country B the cost of a basket of goods containing 8
units of
food and 2 units of drink (i.e. the basket we used to calculate the
CPI in
part ii)) is £110. Calculate the real exchange rate for 2019.
[10 marks]
In 2020, the cost of the basket in Country B increases to £130.
What
happens to the real exchange rate? Does this effect net exports in
Country
A and/or in Country B? Explain.