The real exchange rate is:
A) how much of a foreign currency you can buy with the domestic currency.
B) foreign CPI divided by the domestic CPI.
C) the price of foreign goods in terms of domestic goods.
D) the price of foreign goods in dollars.
E) the domestic currency divided by the price level.

Question

Quizplus · Accepted Answer

The real exchange rate is essentially the price of foreign goods in terms of domestic goods. It adjusts the nominal exchange rate by the price levels (inflation) of the two countries involved, providing a more accurate measure of the exchange of goods between them.

The Real Exchange Rate Is