The real exchange rate is:
A)the nominal price of domestic goods
B)the relative price of domestic and foreign goods
C)the absolute price of foreign goods
D)none of the above

Question

Quizplus · Accepted Answer

The real exchange rate is the relative price of domestic and foreign goods. It represents how much of one country's currency is needed to buy a given amount of another country's currency. It takes into account the nominal exchange rate (the price of one currency in terms of another) and adjusts it for the differences in inflation rates between the two countries. This adjustment is important because it reflects the true purchasing power of each currency in their respective countries.

The Real Exchange Rate Is