The real exchange rate is:
A) the nominal exchange rate minus inflation.
B) the nominal exchange rate adjusted for changes in the price level in the two countries.
C) the nominal exchange rate minus its base value.
D) the nominal exchange rate plus inflation.
E) not an influence on trade.

Question

Quizplus · Accepted Answer

The real exchange rate adjusts the nominal exchange rate for differences in price levels between two countries, allowing for a more accurate comparison of purchasing power and the cost of goods and services across countries.

The Real Exchange Rate Is