The real exchange rate between two currencies tells us:
A) changes in the exchange rate over time.
B) how many units of one currency can be purchased with one unit of the home currency.
C) how much in terms of goods and services the home currency will buy in the foreign nation compared with the home nation.
D) how much depreciation or appreciation has occurred in the home exchange rate.

Question

Quizplus · Accepted Answer

The real exchange rate between two currencies tells us how much in terms of goods and services the home currency will buy in the foreign nation compared with the home nation. This takes into account the inflation rates in both countries, whereas the nominal exchange rate only reflects the exchange rate at a particular point in time.

The Real Exchange Rate Between Two Currencies Tells Us