Q.3 What is a real effective exchange rate (REER)? What are the biases involved in REER? (10 Marks)

Mentor’s Comments-

• https://www.livemint.com/Opinion/6nlCPOcpAw2l0MKUZfv8AN/Is-the-rupee-overvalued-or-undervalued.html
• In the intro, mention that the exchange rate of currency influence the economy.
• In the body, explain REER and the two biases involved in it.
• Conclude by mentioning the need to account for financial, social, and political factors to get a better grasp of how economies actually work