Effective Exchange Rate (Exr)

Multilateral rate that measures the overall nominal value of a currency in the foreign exchange market. It is computed by formulating a weighted average (reflecting the importance of each country’s currency in international trade) of selected bilateral rates. Several institutions such as International Monetary Fund (IMF), US Federal Reserve bank, and Morgan Guaranty Trust Co., compute and publish EXRs based on their own weighting formulas. EXR is an important measure of the overall demand and supply of a currency. Also called trade weighted exchange rate.

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