Nominal and Real Exchange Rates

The nominal CAD/USD exchange rate is currently 1.08 in the spot FX market. If the value of the CAD decreases by 10%, the new nominal exchange rate between these currencies will be _closest_ to:
Incorrect. This answer reflects the new CAD/USD exchange rate after a 10% appreciation in the USD. Since the USD will buy 10% more CAD, 1.08 x 110% = 1.188.
Incorrect. This answer reflects a calculation of the exchange rate based on a decrease of 10% in the USD.
Correct. Since the CAD has decreased by 10%, it now only buys USD 0.833 instead of the original USD 0.926. Stated in terms of CAD/USD, this is 1.200.
0.972.
1.188.
1.200.

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