The real exchange rate is
A)the price of one currency in terms of another.
B)the price of domestic goods relative to foreign goods.
C)the quantity of gold that can be purchased by one unit of currency.
D)the difference in interest rates between two countries.

Question

Quizplus · Accepted Answer

The real exchange rate is the price of domestic goods relative to foreign goods, taking into account the different levels of inflation between the two countries. It reflects the purchasing power of a currency in relation to another currency. Choice A is the nominal exchange rate, which is simply the price of one currency in terms of another. Choice C refers to the gold standard, which is no longer used in modern monetary systems. Choice D pertains to interest rate differentials, which can impact currency movements but do not directly define the real exchange rate.

The Real Exchange Rate Is