Example: If the rate of inflation is at 3%, and the real interest rate is 2%, then the nominal interest rate would be 5%. Rate of Inflation. Since calculating the real interest rate requires you to know the rate of inflation, it’s important to understand this as well. The Nominal Exchange Rate: The nominal exchange rate (NER) is the relative price of currencies of two countries. For example, if the exchange rate is £ 1 = $ 2, then a British can exchange one pound for two dollars in the world market. Similarly, an American can exchange two dollars to get one pound. To convert from nominal interest rates to real interest rates, we use the following formula: real interest rate ≈ nominal interest rate − inflation rate. To find the real interest rate, we take the nominal interest rate and subtract the inflation rate. For example, if a loan has a 12 percent interest rate and the inflation rate is 8 percent, then the real return on that loan is 4 percent. In calculating the real interest rate, we used the actual inflation rate.