Realwechselkurs

Realwechselkurs refers to the real exchange rate, which adjusts the nominal exchange rate for price level differences between two countries. It measures the relative purchasing power of two currencies. The formula for the real exchange rate is the nominal exchange rate multiplied by the foreign price level and divided by the domestic price level. For instance, if the nominal exchange rate is the number of domestic currency units per one unit of foreign currency, the real exchange rate would be this nominal rate times the foreign price index divided by the domestic price index.

A real exchange rate of one indicates that the purchasing power of the two currencies is equal. If the real exchange rate is greater than one, it suggests that the foreign currency is relatively more expensive in real terms, or equivalently, the domestic currency is relatively cheaper. Conversely, a real exchange rate less than one implies the foreign currency is relatively cheaper in real terms. Changes in the real exchange rate can significantly impact international trade and investment flows. For example, a real depreciation of a country's currency can make its exports cheaper for foreigners and its imports more expensive for domestic consumers, potentially improving the trade balance. However, it also makes foreign assets more expensive for domestic investors.