# real exchange rate formula doubt

Real exchange rate formula is the exchange rate multiplied by the ratio of two prices.

what does this ratio actually imply? What is the rationale behind taking the ratio?

As a consumer the nominal exchange rate is arbitrary, £1 can get me $1.28, so what? What matters is how much the consumer can buy given this exchange rate. By incorporating the price level of the domestic and foreign economies the consumer can know how much they will be able to buy with this exchange of currency. Suppose, Domestic economy ~ U.K. Foreign economy ~ U.S.A. Nominal Exchange Rate ~$1.28/£