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# Real Exchange Rate

## Definition

The actual market-determined exchange rate between two currencies, reflecting the true value of the circulating money in each country, which may differ from the official mint standard due to wear, clipping, or debasement of coins. This rate determines the true cost of international transactions.

## Source Chapter

Book IV, Chapter 3

## Context

Smith uses this concept to demonstrate that apparent trade imbalances suggested by computed exchange rates may be misleading, as the real exchange rate often tells a different story about the actual flow of value between nations.

## Economic Domain

Exchange

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