Suppose there are two countries, A and B and if 1 unit of currency of A = x units of currency of B
And x>1 does that mean that country A is richer or people are well off there?
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$\begingroup$ The answer is plain no, no matter how you specify the details. $\endgroup$– Michael GreineckerOct 24, 2021 at 15:15
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$\begingroup$ (-1) This question does not show any research effort. $\endgroup$– GiskardOct 24, 2021 at 16:25
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$\begingroup$ Nominal exchange rate is just a nominal price of a currency in terms of the other, real exchange rate is the relative price of a currency in terms of the other currency. Prices are not measures or indicators of richness/poorness. $\endgroup$– manifoldOct 24, 2021 at 22:39
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2 Answers
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Assuming you are talking about GDP per capita when you talk about rich countries and poor countries. The exchange rate has no direct causal relationship with the rich or poor of a country. It's usually determined by many factors. Just a simple example, the Japanese Yen has a really low value in the exchange rate, but is Japan poor?
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$\begingroup$ *about rich and poor. sorry, it's a typo. $\endgroup$ Oct 24, 2021 at 19:41
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No it doesn't.
In country A a TV costs A\$100 and the average wage is A\$1 per month.
In country B a TV costs B\$1000000 and the average wage is B\$1000000 per month.
The TVs are the same price so 1 A\$ = x B\$ where x=10000. If your idea was true, citizens of A would be richer.
But citizens of B are richer. They can buy 1 TV per month whereas citizens of A can only buy 1 TV every 100 months.
answered Oct 27, 2021 at 16:57