1. tend to move together because purchasing power parity holds.
2. tend to move up and down together, albeit around different trends.
3. tend in the long-run to reflect different domestic and foreign monetary policies.
4. tend to behave as indicated in 2 and 3 above.
Choose the correct option.
The right answer is option 2. Different inflation trends in the domestic and foreign economies will cause the real and nominal exchange rates to exhibit different trends---the nominal exchange rate (measured as the value of domestic currency in terms of foreign currency) will fall relative to the real exchange rate if there is greater domestic than foreign inflation and rise relative to the real exchange rate if inflation is less in the domestic economy than abroad. But around these trends the nominal exchange rate tends to be high when the real exchange rate is high and vice versa.