Which of the Following Best Defines Foreign Exchange

question 162

Multiple Choice

Which of the following best defines foreign exchange?

• A)a trade between two countries
• B)the market where exporting and importing activities take place
• C)the price of a currency relative to another currency
• D)the currency of another country used for trading
• E)the dollars that the United States uses to buy goods from other countries

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Definitions:

Real Exchange Rate

The rate at which two different currencies can be exchanged, taking into account their respective purchasing power.

Nominal Exchange Rate

The rate at which one currency can be exchanged for another currency, without adjustment for inflation.

Purchasing-Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, to assess the relative value of each currency.

Inflation Rate

An upward shift in the overall price levels of goods and services within an economy throughout a specified period.