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Yen vs Dollar: Decoding Nominal vs Real Exchange Rates in Trade
Chapter 31, Problem 3(choose chapter or problem)
If a Japanese car costs 500,000 yen, a similar American car costs $10,000, and a dollar can buy 100 yen, what are the nominal and real exchange rates?
Questions & Answers
QUESTION:
If a Japanese car costs 500,000 yen, a similar American car costs $10,000, and a dollar can buy 100 yen, what are the nominal and real exchange rates?
ANSWER:Step 1 of 2
Currency is a medium of exchange for goods and services within an economy. In our case, we're comparing the Japanese yen and the US dollar.
In our example, a Japanese car costs 500,000 yen, and a similar American car costs $10,000. These are their domestic prices in their respective currencies.
We also know that a dollar can buy 100 yen. This is known as the foreign exchange rate, which is the value of one currency for the purpose of conversion to another.
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Yen vs Dollar: Decoding Nominal vs Real Exchange Rates in Trade
Want To Learn More? To watch the entire video and ALL of the videos in the series:
Grasp the distinction between nominal and real exchange rates, using the yen and dollar as examples. Learn how these rates influence purchasing power in different economies. Understand their implications in the global trade landscape.