See: Real Exchange Rate.
When anything is “nominal,” it is just...named. That is, the nominal exchange rate between a U.S. Dollar and a euro might be 1:1. But that euro might be buying more or less than the U.S. Dollar buys this week, this month, this year.
Eventually, the exchange rates adjust, but at any given moment, the real buying power doesn’t. So exchange rates exist in real, day-to-day life in nominal form. So many dollars for so many euro. And then whoever exchanges to buy them deals with better or worse buying power at the market. Caveat Emptor.
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Finance: What is Nominal Rate?32 Views
finance a la shmoop. what is the nominal rate?
hmm well a nominal rate is the named rate of interest on a bond. here's a bond
Eastern Airlines famously bankrupt a zillion years ago. but what's key here is [bond shown]
the nominal rate on the face of the bond right here. that .you see that 11 and 3/4
percent thing? that's the nominal rate the named rate of interest on the bond.
but when the bond was sold it was actually somewhat better than lukewarm
or almost hot offering and it sold for a hundred five cents on the dollar or a
five percent premium to the nominal rate. so investors did not in fact receive the [woman holds bond]
nominal rate because they paid slightly more than the thousand dollars our value
of the bond. they paid a thousand fifty. so instead they received eleven point
seven five divided by 1.05 or about eleven point two percent in interest.
that was the real return they got. the 11 and three-quarters percent? yeah that's [equation shown]
the nominal. rate the named rate and the performance of the bond well, it was not
phenomenal. [graph shows bankruptcy]
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