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    The Real Exchange Rate

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    Consider the following data for the United States and Switzerland:

    GDP Deflator Switzerland GDP Deflator United States Market Exchange Rate
    - 1980 85.7 76.0 2.49 francs/$
    - 1990 113.4 119.6 2.12 francs/$

    Compute the real exchange rate for 1980 and 1990.
    (Real exch. rate = (exch. Rate*U.S. price index)/foreign price index)

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    Solution Summary

    This response provides a very concise response which illustrates how to compute the real exchange rate values.