The real effective exchange rate for the U.S dollar ?
Correct answer: C. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?
- A. reflects only the influences of merchandise or real trade on the dollar's exchange value
- B. reflects only transactions in the currency futures market
- C. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners adjusted for inflation?
- D. is the weighted average of the dollar exchange rate relative to the currencies of important U.S trading partners unadjusted for inflation?
Explanation
The real effective exchange rate is a trade-weighted average of a currency against those of major trading partners, adjusted for relative inflation. Without inflation adjustment, it would be the nominal effective exchange rate.
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