Suppose the inflation rate in the U.S. is 2% and the inflation rate in China is 1.5%.
a) What is the percentage change in the nominal exchange rate from the U.S. perspective?
b) If the direct quote of the nominal exchange rate between U.S. dollar and Chinese Yuan has increased by 5% from the U.S. perspective, what is the percentage change in the real exchange rate between US dollar and Chinese Yuan?
c) Is this a currency depreciation or appreciation in the U.S. based on the real exchange rate? And why?