Answer
Nominal exchange rate: 100 yen/dollar
Real exchange rate: 2 Japanese cars/American car
Work Step by Step
The nominal exchange rate is the rate at which a person can trade the currency of one country for the currency of another country. (This is usually done at banks or financial institutions.)
The real exchange rate is the rate at which a person can trade the goods and services of one country for the goods and services of another country. (Prices are usually done in terms of goods.)
The nominal exchange rate is the rate quoted, 100 yen/dollar.
The real exchange rate:
Real = nominal rate * domestic price / foreign price
R = 100 yen/dollar * 10000 dollars / 500000 yen
R = 100 * 10000/500000
R = 1000000/500000
R = 1,000,000/500,000
R = 2 Japanese cars/American car
