The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.

The real exchange rate (RER) is the purchasing power of a currency relative to another at current exchange rates and prices.

It is the ratio of the number of units of a given country's currency necessary to buy a market basket of goods in the other country, after acquiring the other country's currency in the foreign exchange market, to the number of units of the given country's currency that would be necessary to buy that market basket directly in the given country.

This reduces rounding issues and the need to use excessive numbers of decimal places.

There are some exceptions to this rule: for example, the Japanese often quote their currency as the base to other currencies.

Forex contracts involve the right to buy or sell a certain amount of a foreign currency at a fixed price in U. It is extremely rare that individual traders actually see the foreign currency.

Instead, they typically close out their buy or sell commitments and calculate net gains or losses based on price changes in that currency relative to the dollar over time.

In order to determine which is the fixed currency when neither currency is on the above list (i.e.

both are "other"), market convention is to use the fixed currency which gives an exchange rate greater than 1.000.

There are various ways to measure RER.[10] Thus the real exchange rate is the exchange rate times the relative prices of a market basket of goods in the two countries.