- Real exchange rate (RER) indicates a country’s trade competitiveness.
- If RER is less than 1, domestic products are cheaper and more competitive.
- If RER is greater than 1, domestic products are more expensive and less competitive.
- When a currency appreciates in real terms, its trade becomes less competitive.
- When a currency depreciates in real terms, its exports become more competitive.
- RER helps understand the true cost of goods for international trade.