The 'real exchange rate' is defined as:
A) the nominal exchange rate corrected for inflation across two countries.
B) the actual trading rate in the market.
C) the future exchange rate that can be fixed using the forward market.
D) the average exchange rate with many countries weighted according to their share of Australia's trade.

Question

Quizplus · Accepted Answer

The real exchange rate adjusts the nominal exchange rate by the relative price levels (inflation rates) between two countries, reflecting the true purchasing power of one currency against another.

The 'Real Exchange Rate' Is Defined As