Question
Distinguish between nominal exchange rate and real exchange rate.
Answer :
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The nominal exchange rate refers to the rate at which one currency can be exchanged for another in the foreign exchange market. It is the actual price of one currency in terms of another without considering the differences in price levels between the two countries. For instance, if 1 US dollar equals 75 Indian Rupees, the nominal exchange rate between the US dollar and the Indian Rupee is 75. It is a straightforward comparison of the value of currencies. On the other hand, the real exchange rate adjusts the
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