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In this tutorial, the real exchange rate is clarified in a stepwise process. Step one involves the equation where the real exchange rate equals the nominal exchange rate divided by the foreign price level over the domestic price level. Note that the nominal exchange rate is in dollars, the domestic currency. Step two suggests rewriting the equation by multiplying by the reciprocal of the denominator. If purchasing power parity holds, then the nominal exchange rate is equal to the purchasing power parity.