• Consider a U.S. investor who wishes to purchase U.K. securities. The current exchange rate is $1.80 per pound. Assume that the price level of a typical consumption basket in the United States is three times the price level of a typical consumption basket in the United Kingdom. 1/ Calculate the real exchange rate. 2/ One year later, price levels in the United States have risen 5 percent, while price levels in the United Kingdom have risen 2 percent. The new exchange rate is $1.854 per pound. What is the new real exchange rate? 3/ Did the U.S. investor experience a change in the real exchange rate?