real exchange rate

Definitions (3)

1. The nominal exchange rate adjusted for inflation. Unlike most other real variables, this adjustment requires accounting for price levels in two currencies. The real exchange rate is: R = EP*/P where E is the nominal domestic-currency price of foreign currency, P is the domestic price level, and P* is the foreign price level.
2. The real price of foreign goods; i.e., the quantity of domestic goods needed to purchase a unit of foreign goods. Equals the reciprocal of the terms of trade.
3. The relative price of traded goods in terms of nontraded goods.

Use real exchange rate in a sentence

You should always try to make sure that you get the best real exchange rate you can when dealing in foreign currency.

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The real exchange rate was adjusted for inflation and I was really happy to know that, because it would make me more prepared.

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Since inflation was at an all time high, the nominal rate needed to be adjusted as well to then get to the real exchange rate at present date.

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