The nominal exchange rate is the price of one currency in terms of another currency in the foreign exchange market. For example, if £1 = $1.25, it means that one British pound can be exchanged for 1.25 US dollars.

Key characteristics include:

• It is determined by the supply and demand of currencies in the market.
• It is influenced by factors like interest rates, inflation, and trade activity.
• When the rate rises, the currency has appreciated; when it falls, the currency has depreciated.
• It is used for basic currency conversions.

Unlike the real exchange rate, the nominal rate does not adjust for differences in price levels between countries. Therefore, it does not show the true purchasing power or international competitiveness of a currency.