Economics · Exchange Rate
In a study of the impact of globalization on currency competitiveness, the Real Effective Exchange Rate (REER) is used as a proxy. Assume that in the base year, the index for both India and its major trading partner (the USA) is 100, and the exchange rate is 80 INR per USD. Over the next year, the Indian Rupee depreciates nominally to 84 INR per USD. During this period, the inflation rate in India is 8 percent, while the inflation rate in the USA is 3 percent. Calculate the percentage change in the Nominal Effective Exchange Rate (NEER) and determine if the REER indicates that the Indian Rupee has become more or less competitive.
Verified Solution4 OptionsUpdated: October 2026👁️1 View
Share:
- 1NEER decreased by 4.76%; REER indicates near-neutral competitiveness due to inflation differential.✓
- 2NEER decreased by 5%; REER shows the Rupee is less competitive.
- 3NEER increased by 5%; REER shows the Rupee is less competitive.
- 4NEER decreased by 5%; REER shows the Rupee is more competitive.
Correct answer
NEER decreased by 4.76%; REER indicates near-neutral competitiveness due to inflation differential.
Download Single Question PDF
Save this question and verified answer as a clean study sheet with live clickable link.
👥
Share with Friends & Study Groups
Challenge your peer aspirants on WhatsApp or Telegram to solve this question!
Online Test Series
Start Free Mock Test →Preparing for Economics?
Practice full-length mock tests with real exam timers, instant score analysis, and all-India ranking.
Chapter Practice
Practice Exchange Rate MCQs →Want more practice questions on Exchange Rate?
Solve complete topic-wise tests with detailed solutions on GkGet.
Related Practice Questions
Recommended practice questions in Economics · Exchange Rate