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Explain how a real effective exchange rate is calculated, in your answer explain how this differs from a nominal effective exchange rate. Under what circumstances
- Explain how a real effective exchange rate is calculated, in your answer explain how this differs from a nominal effective exchange rate. Under what circumstances might the REER be considered superior to the NEER, and under what circumstances may the NEER be considered more useful than the REER?
- The following rates of interest and exchange rates are prevailing within Australia and Canada:
Country | Interest Rates |
Australia | 5% |
Canada | 11% |
Exchange Rate - (AUD/CAD) 0.7375-0.7425
- What are the key macro-economic factors that influence exchange rates?
- If uncovered interest rate parity theory holds, what will happen to the AUD/CAD exchange rate?
- Estimate the forward rate based on the current exchange rates and rates of interest.
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