Relative Price of an Imported T-shirt
To illustrate how relative prices between countries are calculated, consider a T-shirt from the US priced at $20 USD that is imported into Australia. If the nominal exchange rate is 1.5 AUD per USD, the price of the T-shirt in Australian currency is calculated as $1.5 \times 20 = 30 AUD. If a comparable Australian-made T-shirt costs 25 AUD, the relative price of the imported US T-shirt is found by dividing its AUD price by the domestic price: $30 / 25 = 1.2. This means the imported T-shirt is 20% more expensive than the domestic one.
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Relative Price of an Imported T-shirt
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