The real and nominal exchange rates differ in the sense that:
A) the real exchange rate does not express differences in the purchasing power of a currency.
B) the nominal exchange rate is adjusted for price differences between countries and the real is not.
C) the nominal exchange rate does not reflect differences in purchasing power between currencies.
D) nominal exchange rates are fixed but real rates are flexible.

Question

Quizplus · Accepted Answer

The nominal exchange rate simply compares the value of two currencies without taking into account the differences in their purchasing power. The real exchange rate, on the other hand, adjusts the nominal exchange rate for differences in price levels between countries, thus reflecting the relative purchasing power of the two currencies.

The Real and Nominal Exchange Rates Differ in the Sense