# Understanding Exchange Rates: A Comparative Study

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Exchange Rate (Exchange Rate) Sukirno (2004) states that foreign exchange rates or foreign exchange rate is the price or value of a country's currency is expressed in another country's currency, or it can also be interpreted as the amount of domestic currency needed to get one unit of foreign currency. Meanwhile, according to Mankiw (2013) the exchange rate between two countries is a rate agreed resident of both countries for mutual trade with one another. Economists distinguish between the exchange rate being two (Mankiw, 2013), namely: The nominal exchange rate, the relative price of currencies of two countries. For example, if the exchange rate between the dollar A S and the Japanese yen is 80 yen per dollar . Japanese people who want to have dollars, ak early pay 80 yen for each dollar he bought. While the Americans who want to have the yen will get 80 yen for each dollar he was paid. When people refer to " exchange " between the two countries, …show more content…

The real exchange rate tells us the rate at which we can trade the goods of one country for goods from other countries. The real exchange rate some- times referred to as the terms of trade. To view the exchange rate relationship in real terms using the nominal exchange rate, can be taken samples h a goods produced in some countries, such as cars. Suppose the price of the car with 25,000 dollars, while the price of Japanese cars is 4,000,000 yen . To compare the prices of both cars , we have to transform them into a common currency. If one dollar worth of 80 yen , the price of cars Americans to 80 x 25,000, or 2,000,000 yen. By comparing the price of an American car (2,000,000 yen) and the price of Japanese cars (4,000,000 yen), it can be concluded that the price of the American car is half the price of Japanese cars . In other words, pad a price effect we can swap two American cars to get a Japanese car . Peng count can be written as