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Purchasing power parity exchange rate is used when comparing national production and consumption and other places where the prices of non-traded goods are considered important. (Market exchange rates are used for individual goods that are traded). PPP rates are more stable over time and can be used when that attribute is important.
Comparison of real and nominal gas prices 1996 to 2016, illustrating the formula for conversion. Here the base year is 2016. ... In this example, the real wage rate ...
The real exchange rate is a more informative measure of the dollar's worth since it accounts for countries whose currencies experience differing rates of inflation from that of the United States. This is compensated for by adjusting the exchange rates in the formula using the consumer price index of the respective countries.
For example, if the inflation rate is 5%, on a one-year loan of $1,000 with an 8% nominal interest rate the real interest rate would be 8% minus 5% or 3%. The real interest rate will usually be ...
The Real Exchange Rate (RER) represents the nominal exchange rate adjusted by the relative price of domestic and foreign goods and services, thus reflecting the competitiveness of a country with respect to the rest of the world. [19]
This is quite intuitive, as an agent in country A with a constant real income stream would ceteris-paribus have a higher purchasing power for goods from country B after one period has passed, but the exchange rate adjusts exactly to offset this advantage by making the currency of country B nominally more expensive.
For instance, if a loan offers a 4% nominal interest rate and inflation is 2%, the real interest rate is approximately 2%. The world of finance has a somewhat different definition.
The following is a list of CNY exchange rates based on PPP, estimated according to the International Monetary Fund's World Economic Outloo wek (WEO) database from 2006–present. The exchange rate shown is Intl$. 1 to Chinese yuan (CNY).