2. During the semester break, you plan on visiting Nepal. After reaching Kathmandu, when you go to convert your Bangladeshi Taka into Nepalese Rupee, you see that for every BDT 1000, you are getting NPR 1370. On your last day, you go for some shopping and want to buy a Pashmina shawl. The average price of 100% pure Pashmina is NPR 6500 and you immediately check online that in Bangladesh the price of the exact same shawl is BDT 9000. Based on this information, answer the following questions: (a) Define Nominal Exchange Rate. What is the nominal exchange rate of NPR in terms of BDT? (b) What is the Real Exchange Rate of NPR in terms of BDT considering the price level of 100% pure Pashmina shawl? (c) According to your result in (b), is it a good idea or a bad idea to buy Pashmina from Nepal, whereas it is available anyway in Bangladesh?
2. During the semester break, you plan on visiting Nepal. After reaching Kathmandu, when you go to convert your Bangladeshi Taka into Nepalese Rupee, you see that for every BDT 1000, you are getting NPR 1370. On your last day, you go for some shopping and want to buy a Pashmina shawl. The average price of 100% pure Pashmina is NPR 6500 and you immediately check online that in Bangladesh the price of the exact same shawl is BDT 9000. Based on this information, answer the following questions: (a) Define Nominal Exchange Rate. What is the nominal exchange rate of NPR in terms of BDT? (b) What is the Real Exchange Rate of NPR in terms of BDT considering the price level of 100% pure Pashmina shawl? (c) According to your result in (b), is it a good idea or a bad idea to buy Pashmina from Nepal, whereas it is available anyway in Bangladesh?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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