Finance lecture 3.pptVIP

Copyright ? 2009 Pearson Addison-Wesley. All rights reserved. 15-* The Real Exchange Rate Approach to Exchange Rates Because of the shortcomings of PPP, economists have tried to generalize the monetary approach to PPP to make a better theory. The real exchange rate is the rate of exchange for goods and services across countries. In other words, it is the relative value/price/cost of goods and services across countries. For example, it is the dollar price of a European group of goods and services relative to the dollar price of a American group of goods and services: qUS/EU = (E$/€ x PEU)/P