The rate at which one country’s real goods and services can be changed into those of another. If the home price level is p_h, the foreign price level is p_f, and the nominal exchange rate, measured as the home price of a unit of foreign currency, is e, the real exchange rate, r, is defined as r = ep_f/p_h. If each country produced only one type of good, so that home and export sales were at the same price, the real exchange rate would be the same as the terms of trade. As home sales typically include non-traded goods, and the composition of exports and home sales of exportables usually differs, the real exchange rate can deviate from the terms of trade.