The real exchange rate:
A) expresses the value of goods in one country in terms of the same goods in another country.
B) is the nominal exchange rate adjusted for purchasing power parity.
C) uses the price level in each country to convert the exchange rate into a value expressed in "real" terms.
D) All of these are true.

Question

Quizplus · Accepted Answer

The real exchange rate incorporates aspects of all the given options: it compares the value of goods between countries (A), adjusts the nominal exchange rate for differences in price levels or purchasing power parity (B), and uses price levels to express the exchange rate in real terms (C).

The Real Exchange Rate