Currency & Forex
Advanced

Real Exchange Rate

The nominal rate adjusted for price levels, measuring relative purchasing power.

Formula

RER=S×PforeignPdomesticRER = S \times \dfrac{P_{foreign}}{P_{domestic}}

Variables

RERReal exchange rate
SNominal exchange rate
P_{foreign}Foreign price level
P_{domestic}Home price level

Example

S 1.1, foreign 105, home 100: RER = 1.155

Did You Know?

A rising real exchange rate erodes export competitiveness even when the nominal rate is unchanged.

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