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.
Because of the volatility in the price of foreign currency, losses can accrue very rapidly, wiping out an investor’s down payment in short order.
There are various ways to measure RER. Thus the real exchange rate is the exchange rate times the relative prices of a market basket of goods in the two countries.
For example, the purchasing power of the US dollar relative to that of the euro is the dollar price of a euro (dollars per euro) times the euro price of one unit of the market basket (euros/goods unit) divided by the dollar price of the market basket (dollars per goods unit), and hence is dimensionless.
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.