![]() ![]() ![]() This is done because if the domestic price level rises by 10%, the foreign price level remains unchanged and the domestic currency depreciates nominally by 10%.More importance is given to the real exchange rate as compared to the nominal exchange rate when assessing the effect of exchange rates on the international trade or export competitiveness of a country.It helps to determine the real exchange rate where the foreign price level is converted into domestic currency units via the current nominal exchange rate.The nominal exchange rate can be impacted by the monetary policy, which determines the rate of domestic inflation.A high nominal exchange rate may create the false impression that a unit of domestic currency will be able to purchase many foreign goods, whereas only a high real exchange rate justifies this assumption.Significance Significance of Nominal Exchange Rate ![]()
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