Question : The nominal exchange rate is defined as:
Option 1: The rate at which one currency can be exchanged for another.
Option 2: The rate at which a currency can be exchanged for goods and services.
Option 3: The rate at which a currency can be exchanged for gold.
Option 4: The rate at which a currency can be exchanged for other financial assets.
Correct Answer: The rate at which one currency can be exchanged for another.
Solution : The correct answer is (a) The rate at which one currency can be exchanged for another.
It represents the price of one currency in terms of another currency. For example, if the exchange rate between the U.S. dollar and the Euro is 1.20, it means that 1 U.S. dollar can be exchanged for 1.20 Euros. The nominal exchange rate is commonly used for currency conversion and international trade purposes.
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