Answer: reflect changes in relative purchasing power.

**Explanation:** Real exchange rates measure the relative purchasing power between two currencies, adjusting nominal exchange rates for differences in price levels between countries. - **Option A is correct**: Real exchange rates do reflect changes in relative purchasing power. They are calculated as: Real Exchange Rate = Nominal Exchange Rate × (Foreign Price Level / Domestic Price Level) This shows how much goods and services in one country can be exchanged for goods and services in another country. - **Option B is incorrect**: Global foreign exchange markets quote nominal exchange rates, not real exchange rates. Real exchange rates are calculated values derived from nominal rates and price level data. - **Option C is incorrect**: Real exchange rates do not have a strong track record as predictors of future nominal exchange rates. While they may indicate long-term equilibrium values, short-term nominal exchange rate movements are influenced by many other factors including interest rate differentials, capital flows, and market sentiment. The concept of real exchange rates is fundamental in international economics for understanding purchasing power parity and assessing a country's competitiveness in international trade.

Author: LeetQuiz .