Economics Exchange Rate Systems Questions
The nominal exchange rate refers to the rate at which one currency can be exchanged for another currency. It is the value of one currency in terms of another currency.
On the other hand, the real exchange rate takes into account the relative purchasing power of two currencies. It is the nominal exchange rate adjusted for inflation or changes in price levels between two countries. The real exchange rate reflects the actual purchasing power of a currency and indicates how much goods and services can be bought with a certain amount of currency.