The document discusses the concepts of nominal and real exchange rates, highlighting their definitions and differences. Nominal exchange rates reflect the value of one currency relative to another, while real exchange rates account for purchasing power and price levels. The document also outlines how these rates are calculated and their implications for trade and currency transactions.

1. By:-
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exchange-rate
Real vs Nominal Exchange Rate

2. 1. Nominal Exchange Rate
2. Real Exchange Rate
3. Differences
4. Reference
Content

3. A nominal exchange rate is the general exchange rate of one country’s currency relative to another. It is the rate at
which one country’s currency can be exchanged for another country’s.
Nominal Exchange Rate

4. Real exchange rates are used to determine the actual purchasing power of that currency, and for determining the real
exchange rate, we use the same nominal exchange rate. It tells how much of the goods and services of the foreign
country can be bought by exchanging the goods and services of the home country.
Real Exchange Rate

5. The difference between real and nominal exchange rates are listed below:
1. Meaning:
Nominal exchange rate indicates how much one currency we can buy with one unit of another currency, while the real
exchange rate compares the general price level of certain commodities or baskets of commodities of the two countries.
2. Calculation:
Macro factors and the supply and demand of a currency help determine the nominal exchange rate. While we adjust the
nominal rates for the price levels to get the real exchange rate.
3. Exports:
We use the nominal exchange rate to evaluate both exports and imports. On the other hand, a focus on the real exchange
rate is important in assessing a country’s export competitiveness
4. Floating:
5. Use:
Differences

6. 4. Floating:
Nominal exchange rates are constantly changing, we can say that real exchange rates even floating.
5. Use:
The nominal exchange rate is more commonly used in everyday foreign exchange transactions while the real exchange
rate is of no use for the average citizen.
Differences

7. Reference
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