The ratio of foreign rates to domestic rates measured in the currency is known as
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The price of one currency in terms of the other is known as the exchange rate. ( Real exchange rate – the ratio of foreign to domestic prices, measured in the same currency.
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The ratio of foreign rates to domestic rates measured in the currency is known as Real exchange rate.
Definition of Real exchange rate
The actual exchange rate is the current price that firms and consumers will pay in their home currency to purchase a foreign product.
Formula of Real exchange rate
The nominal exchange rate multiplied by the price ratio between the two nations yields the actual exchange rate between two currencies.
Objective of Real exchange matter
- The currency exchange rate, along with interest rates and inflation, is one of the most significant predictors of a country's relative economic health.
- In international marketplaces, a stronger currency makes imports cheaper and exports more expensive.
Hence, real exchange ratio is important to study relative growth of country.
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