标题: Real exchange rate and quote structure [打印本页] 作者: suyash1989 时间: 2013-4-20 00:06 标题: Real exchange rate and quote structure
Suppose the exchange rate is quoted as FCC (same as DC/FC).
Then the equation for the real exchange rate
Real S(DC/FC) = S(DC/FC) * ( P(FC) / P(DC) )
That is to say, in other circumstances you follow the DC/FC convention for putting the rates into the formula, but here it is inverted, the FC on top and the DC in the denominator.
Why is it inverted? I don’t get it.作者: mkytz15 时间: 2013-4-20 00:11
Why not think about it like the following?
NOM$/Y = REAL$/Y * (1+P$)/(1+PY)
You agree with that? The nominal rate is always real * inflation. Notice that $ on top and Yen on bottom throughout.
What’s the real rate?
REAL$/Y = NOM$/Y / (1+P$)/(1+PY)
………… = NOM$/Y * (1+Py)/(1+P$)
C (same as DC/FC).