Question:
The Real Effective Exchange Rate (REER) differs from the Nominal Effective Exchange Rate (NEER) because REER:
(1) adjusts for inflation differentials between the home country and trading partners.
(2) is determined solely by the Central Bank.
(3) only considers trade with the US Dollar.
(4) ignores the weight of different trading partners.
(5) is always fixed.
Correct Answer:
(1)
Answer Explanation:
NEER is just the weighted average exchange rate. REER adjusts NEER for relative prices (inflation). If REER rises, the country’s goods are becoming more expensive (less competitive) relative to partners.
Topic: Exchange Rates Year: 2024
Leave a Reply