The exchange rate between the british pound and the u. s. dollar is 2. in england, the price level is 1.0 and the one-year interest rate is 20%. in the united states, the price level is .8 and the one-year interest rate is 8%. the inflation rate in both countries is zero. refer to the information above. the real exchange rate (from the united states' perspective) is
a. 625.
b. 8.
c. 1.6.
d. 2.0.
e. none of the above

C) 1.6

Explanation:

The real exchange rate is calculated by multiplying the nominal exchange rate by the price level of the countries:

nominal exchange rate = 2 US dollars per British pound = $2/£

real exchange rate = $2/£ x (US price level / British price level) = $2/£ x 0.8 = $1.6/£

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