CBSE Class 12-commerce Answered

Nominal exchange rate is that type of exchange rate which does not cause any change in the price level while measuring average strength of one currency in relation to the other.

Real exchange rate is that type of exchange rate which accounts for change in the price level across different countries of the world. It is an exchange rate which is based on constant prices.

To buy domestic goods or foreign goods at a particular period of time, the nominal exchange rate is more relevant.