The purchasing power of a currency relative to another at current exchange rates and prices is _______.

Correct option is A

The correct answer is (a) real exchange rate.

Explanation: The real exchange rate (RER) between two currencies is the product of the nominal exchange rate (the dollar cost of a euro, for example) and the ratio of prices between the two countries.

Information Booster:

• The balance of payments (BoP) is a record of a country's economic transactions with the rest of the world over a specific period. It includes the exchange of goods, services, financial assets, and transfer payments. The BoP is a key economic indicator for countries that participate in international trade.
• The nominal exchange rate is the price of one currency in terms of another, and is the officially announced exchange rate that doesn't account for inflation.
• Purchasing power parities (PPPs) are the rates of currency conversion that try to equalise the purchasing power of different currencies, by eliminating the differences in price levels between countries.