Nominal Exchange Rate
- The number of units of the domestic currency that are needed to purchase a unit of a given foreign currency.
- The price of an unit of foreign currency, in terms of the local currency.
It we need to give 1.35 dollars to buy one Euro, the exchange rate is 1.35 EURUSD
It's called nominal because it doesn't take the purchasing power into account. The real exchange rate take prices of goods and services into account.
The exchange rate has an influence in the real economy through various channels. It affect exports and imports, prices, capital flows and investment. 1)
Evolution of the EURUSD exchange rate