Question

Three-wheel cars made in North Edsel are sold for 5000 pounds.​ Four-wheel cars made in South Edsel are sold for​ 10,000 marks. The real exchange rate between North and South Edsel is four​ three-wheel cars for three​ four-wheel cars. The nominal exchange rate between the two countries is _______

Answer 1

1.50 marks per pound

Explanation:

Data provided in the question:

Selling price of three-wheel cars made in North Edsel = 5000 pounds

Selling price of four-wheel cars made in south Edsel = 10,000 marks

Real exchange rate between North and South Edsel

= four​ three-wheel cars for three​ four-wheel cars

i.e

⇒ 4 × 5000 pounds = 3 × 10,000 marks

or

1 pounds = [ ( 3 × 10,000 ) ÷ ( 4 × 5,000) ]

or

1 pound = 30,000 ÷ 20,000

or

1 pound = 1.50 marks

Hence,

The nominal exchange rate = 1.50 marks per pound