Question $6$

The dollar$-$pound exchange rate is initially $$\frac{1\mathrm{.}50}{}1$ and moves to $$\frac{1\mathrm{.}35}{}1$ two year's

later. Over the same period the US price index rises from $100$ to $120,$ while the UK price

index moves from $100$ to $108.$ Assuming the real dollar per pound index was $100$ to start

with, which of the following statements is true concerning the real exchange rate index of

the pound following the exchange rate and price index changes?

A$)$ It will be unchanged at $100$

B$)$ It will have depreciated to $90$

C$)$ It will have appreciated to $81$

D$)$ It will have depreciated to $81$

E$)$ None of the above