The nominal exchange rate as commonly known is the price of one currency in terms of another. It’s usually expressed as the domestic price of the foreign currency. So if it costs 89,500 LBP to buy 1 USD, from a Lebanese perspective the nominal rate is – you guessed it – 89,500 LBP per USD[1]. But the nominal exchange rate isn’t the whole story, as the Lebanese person or firm buying another currency (USD) is interested primarily in what can be bought with it. That’s where the real exchange rate (RER) comes in. It seeks to measure the value of a country’s goods against those of another country, or a group of countries or the rest of the world, at the prevailing nominal exchange rate.
[1]Alternatively from a US perspective, it can be expressed as 0.000011 LBP/USD, or what it would cost in USD to buy 1 LBP.
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