The nominal exchange rate:

Question

Quizplus · Accepted Answer

The nominal exchange rate is the rate at which one currency can be exchanged for another currency, without taking into account inflation. Hence, it is unadjusted for inflation.

Options A and B are incorrect because the nominal exchange rate does not account for inflation, and it may not always equal purchasing power parity.

Option D is partially correct as the nominal exchange rate does affect the current account, as changes in the exchange rate can impact the competitiveness of exports and imports, and hence affect the balance of trade. However, it is not the most accurate answer as the question is asking about the nature of the nominal exchange rate, rather than its effects.

The Nominal Exchange Rate