Nominal Exchange Rate is the price of one currency in terms of another. For example, if we have to pay Rs 50 for $1, then the exchange rate is Rs 50 per dollar. It simply links the currencies of different countries and enables comparison of international costs and prices.

Real Exchange Rate reflects differences in the price levels between countries. Over the long run, exchange rates between any two national currencies adjust to reflect differences in the price levels in the two countries. This means the same product should cost the same whether measured in rupees in India, or dollars in the US, except for transportation differences.

Relevance for Purchasing Decision: The real exchange rate would be more relevant when deciding whether to buy domestic goods or foreign goods. This is because the real exchange rate accounts for the actual purchasing power by considering both the nominal exchange rate and the relative price levels in the two countries.

A rise in price of foreign exchange will increase the cost (in terms of rupees) of purchasing a foreign good. However, the real exchange rate gives a more accurate picture of relative costs between domestic and foreign goods by adjusting for price level differences, enabling a proper comparison of international costs and prices.

Therefore, for making decisions about buying domestic versus foreign goods, the real exchange rate is more relevant as it reflects the true relative cost of goods between countries.