The ________ exchange rate depends on the ________ exchange rate and the ________ of domestic and foreign prices.

Question

Quizplus · Accepted Answer

The real exchange rate is affected by the nominal exchange rate, which is the rate at which one currency can be exchanged for another, as well as the ratio of domestic and foreign prices. The real exchange rate reflects the purchasing power of a currency and takes into account the effect of inflation on the exchange rate, hence the importance of price levels in determining the real exchange rate. Therefore, C, real; nominal; ratio, is the best choice.

The ________ Exchange Rate Depends on the ________ Exchange Rate

The Exchange Rate Depends on the Exchange Rate