The difference between nominal and real exchange rates is:

Question

Quizplus · Accepted Answer

Nominal exchange rates are the actual rates at which one currency can be exchanged for another currency, while real exchange rates are the relative prices of goods and services between two countries. The real exchange rate is calculated by dividing the nominal exchange rate by the ratio of price levels between two countries. Therefore, the difference between nominal and real exchange rates comes down to the fact that nominal exchange rates are absolute prices, while real exchange rates are ratios of domestic prices to foreign prices.

The Difference Between Nominal and Real Exchange Rates Is