10 Questions
What is the purpose of calculating exchange rate indices?
To evaluate the relative purchasing power of different currencies
What does the real effective exchange rate index measure?
The purchasing power of a currency in terms of PPP
What is the formula for the exchange rate index?
ER = EN × CC
What is the base year for the real effective exchange rate indexes in Exhibit 6.3?
2010
What is exchange rate pass-through a measure of?
The response of imported and exported product prices to changes in exchange rates
What is the own-price elasticity of demand for a good?
The percentage change in quantity of the good demanded as a result of the percentage change in the good's price
What is the symbol for the own-price elasticity of demand for a good?
εp
What is an important factor when determining exchange rate pass-through levels?
The price elasticity of demand for a good
Which countries have chosen to change their objectives and choices in recent years?
Emerging market countries
What is the source of the data for Exhibit 6.3?
Bank for International Settlements
Test your understanding of the relative purchasing power parity theory, a concept in international finance that relates to exchange rates and price changes between countries.
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