Introduction 📜

1. Real exchange rate is a measure of the relative value of one currency compared to another, taking into account differences in inflation rates between the two countries.

2. It is calculated by dividing the nominal exchange rate by the ratio of domestic to foreign prices.

3. Real exchange rate is used to evaluate the relative competitiveness of different countries and to make international trade and investment decisions.

Importance 💼

1. Real exchange rate is an important measure of a country's competitiveness in the global economy.

2. It is used to evaluate the relative competitiveness of different countries and to make international trade and investment decisions.

3. Real exchange rate is also used to make predictions about future exchange rate movements and to evaluate the performance of different countries.

Common Interview Questions 💬

1. What is the real exchange rate?

2. How is the real exchange rate used to evaluate the relative competitiveness of different countries?

3. How is the real exchange rate used to make international trade and investment decisions?

4. What are some of the advantages and disadvantages of using a real exchange rate?

Advantages 💡

1. Real exchange rate helps to evaluate the relative competitiveness of different countries and to make international trade and investment decisions.

2. Real exchange rates can be used to make predictions about future exchange rate movements and to evaluate the performance of different countries.

3. Real exchange rates can also be used to measure the relative buying power of different currencies.

Disadvantages 🚫

1. The real exchange rate is based on estimates and assumptions about inflation rates, which may not always be accurate.

2. The real exchange rate does not take into account other factors that may affect competitiveness, such as labor costs and productivity.

3. Real exchange rate may not always be useful in practice, as it is based on theoretical assumptions that may not always hold in the real world.

Conclusion 🔚

1. The real exchange rate is a measure of the relative value of one currency compared to another, taking into account differences in inflation rates between the two countries.

2. It is used to evaluate the relative competitiveness of different countries and to make international trade and investment decisions.

3. The real exchange rate has advantages such as helping to evaluate competitiveness and predict future exchange rate movements, but it also has disadvantages such as being based on estimates and assumptions about inflation rates and not taking into account other factors that may affect competitiveness.