economics hard True/False

The Real Effective Exchange Rate (REER) adjusts the Nominal Effective Exchange Rate (NEER) for inflation differentials between the home country and its trading partners.

  1. True
  2. False

Answer: True

While NEER measures the weighted average of a currency relative to a basket of others, REER adjusts this for relative inflation rates. REER is a superior indicator of a country's actual trade competitiveness, as high domestic inflation can erode the benefits of a nominally depreciated currency.

Topic International Economics - Exchange Rates
Exam Relevance UPSC Prelims, Banking, SSC
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