ECON 248 12.2 Prices For International Transactions: Nominal Exchange Rates And Real Exchanges

The rate at which a person can trade one currency for another.

Nominal Exchange Rate

The nominal exchange rate is calculated as following:

Foreign Currency per Domestic Dollar

If a domestic dollar can buy more foreign dollars suddenly, the domestic dollar has been (), while the opposite is called a ().

Appreciated(Strengthen), Depreciation(Weaken)

The rate at which a Country can exchange goods and services for another Country’s goods and services.

Real Exchange Rate

Real Exchange Rate is calculated as following:

(Nominal Exchange Rate(e) * Domestic Price Of A good(P)) / Foreign Price Of A Good(P*)

Real Exchange Rate tells us how much () goods one () good is worth.

Foreign, Domestic

A major determinant in real exchange rates is the ().

Nominal Exchange Rates

The nominal exchange rate is affected by the ().

Foreign Exchange Market

A fall(depreciation) in real exchange rate means that Domestic Goods have gotten () compared to foreign goods, while a rise would do the opposite.

Cheaper