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What’s differences and similarities between Nominal and Real Exchange rates?

What’s differences and similarities between Nominal and Real Exchange rates?

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Answer - The nominal exchange rate tells us how much of one currency can be exchanged for the other. The real exchange rate tells us how much quantity of a good or service of other country can be purchased from other currency.

The nominal exchange rate does not adjust the effect of inflation whereas the real exchange rate is the value after adjusting the effect of inflation.

The similarity is nothing but just that both are used to compare the value of currency of one country with another.

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