Q. Consider the following statements about the Nominal effective exchange rate (NEER) and Real effective exchange rate (REER):
Select the correct answer using the code given below:
Q. Consider the following statements about the Nominal effective exchange rate (NEER) and Real effective exchange rate (REER):
Select the correct answer using the code given below:
The correct option is A 1 only
Explanation:
Statement 1 is correct. NEER is an indicator of a country’s international competitiveness in terms of the foreign exchange market. Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) are indicators of external competitiveness. NEER is a weighted index that reflects the trade of India with other countries. The weight is greater for countries with which India trades more.
Statement 2 is incorrect. An increase in REER of a country indicates exports are becoming expensive and imports are becoming cheaper, hence the country is becoming less competitive as compared to other countries.
Explanation:
Statement 1 is correct. NEER is an indicator of a country’s international competitiveness in terms of the foreign exchange market. Nominal Effective Exchange Rate (NEER) and Real Effective Exchange Rate (REER) are indicators of external competitiveness. NEER is a weighted index that reflects the trade of India with other countries. The weight is greater for countries with which India trades more.
Statement 2 is incorrect. An increase in REER of a country indicates exports are becoming expensive and imports are becoming cheaper, hence the country is becoming less competitive as compared to other countries.
