The difference between the nominal and real exchange rates is that
A) nominal rates are temporary, while real rates are permanent.
B) the real exchange rate is the actual rate used by traders.
C) the real exchange rate takes relative purchasing power into account, while the nominal rate does not.
D) the nominal exchange rate is approximate, while the real rate is precise.

Question

Quizplus · Accepted Answer

The nominal exchange rate is simply the rate at which one currency can be exchanged for another, while the real exchange rate takes into account the relative purchasing power of each currency. This means that the real exchange rate provides a more accurate measure of the true cost of goods and services across different countries.

The Difference Between the Nominal and Real Exchange Rates Is