Search results
Results from the WOW.Com Content Network
There are four aspects for alternative measures of REER which are (a) using end-of-period or period averages of the nominal exchange rate. (b) choosing price indexes. (c) in obtaining the real effective exchange rates, deciding upon the number of trading partners in calculating the weights. (d) deciding upon the formula to use in aggregation.
The effective exchange rate index describes the strength of a currency relative to a basket of other currencies. Although typically the basket is trade weighted, there are others besides the trade-weighted effective exchange rate index . Ho (2012) proposed a new approach to compiling effective exchange rate indices.
The trade-weighted effective exchange rate index is an economic indicator for comparing the exchange rate of a country against those of their major trading partners. By design, movements in the currencies of those trading partners with a greater share in an economy's exports and imports will have a greater effect on the effective exchange rate. [1]
Purchasing power parity (PPP) [1] is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currencies. PPP is effectively the ratio of the price of a market basket at one location divided by the price of the basket of goods at a different location.
Formally, exchange-rate pass-through is the elasticity of local-currency import prices with respect to the local-currency price of foreign currency. It is often measured as the percentage change, in the local currency, of import prices resulting from a one percent change in the exchange rate between the exporting and importing countries. [1]
Suppose initially the US exports 60 million tons of goods to Japan and imports 100 million tons of other goods under an exchange rate of $.01/yen and prices of $1/ton and 100 yen/ton, for a trade deficit of $40 million. The initial effect of dollar depreciation to $.011/yen is to make imports cost $110 million, and the deficit rises to $50 million.
v. t. e. In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. [1] Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of the euro. [2]
Interest rate parity. Interest rate parity is a no- arbitrage condition representing an equilibrium state under which investors compare interest rates available on bank deposits in two countries. [1] The fact that this condition does not always hold allows for potential opportunities to earn riskless profits from covered interest arbitrage.