Question

If the price of a sofa is $800 in the u.s. and 2400 pesos in argentina, and the exchange rate is 4 pesos per dollar, what is the real exchange rate?

Answer 1

The real exchange rate ( RER ) is the ratio of the price level abroad and the domestic price level.
RER = ( Nominal Exchange Rate x Foreign Price ) / ( Domestic Price )
The price of sofa is 2,400 pesos in Argentina and the nominal exchange rate is 4 pesos per dollar ( 2,400 : 4 = $600 )
RER = 4 x $600 / $800 = 3
Answer: The Real Exchange Rate is 3 pesos per dollar.