What's The Difference Between: Real vs. Nominal explained, someone, include, between, exchange

himanshumh

From Schweser: "Real exchange rate movements are changes in the exchange rate that are not fully explained by the inflation differential."

does that mean real does not include inflation?

I'm confused

Can someone please explain to me the differences between nominal and read?

Thanks in advance.

smuggycfa

A nominal change in currency rates can be explained through inflation(Purchaser Price Parity). If you adjust the currencies for PPP and they are not the same after a given time period then the currency relationship has experience a "real" movement.

.i.e. look at the Greek debt crisis now. Why has the Euro depreciated -14.2% this year against the $US? Because real exchange rates have moved that cannot be explained though inflation.

Real does not include inflation. "Real" is what you are left with once you factor inflation out of the equation. It's a similar concept to real GDP vs. nominal GDP

WarrenB1

thanks for the explanation

jacksparrow

awesome explanation