Why don't the local prices of restaurant meals, haircuts, and gardening services affect a country's exchange rate?
What will be an ideal response?
Answer: Exchange rate means the value of one currency for the purpose of conversion to another. The exchange rate is determined by the world demand and supply of traded goods of any currency. That menas those goods which are traded between countries are taken into considaration for determining exchange rate. And those which are non-traded goods does not taken into considaration for accounting exchange rate.
Now as the restaurant meals , haircuts and gardening services are non-traded goods and services so its prices are not taken into considation for accounting exchange rate, which inturn has no effect on a country's exchange rate.
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