An effective exchange rate (EER) is a weighted average of a country's currency in relation to a basket of foreign currencies, and is used to measure the value of the currency against a group of tradingpartners.
The weights used in the calculation of the EER are based on the relative importance of the trading partners to the country in question, typically measured by the amount of trade that takes place between thetwo.
An EER index is a measure of the value of a country's currency relative to a basket of foreign currencies over time. The index is calculated by comparing the current EER to a base period, which is usually set to equal 100. If the EER increases over time, it means that the currency is appreciating in value relative to the basket of foreign currencies. If the EER decreases over time, it means that the currency is depreciating in value relative to the basket of foreigncurrencies.
EER indexes are used by central banks and other financial institutions to assess the competitiveness of a country's exports, as well as to evaluate the overall strength of the country's economy. They can also be used by businesses and investors to make decisions about foreign exchange risks andopportunities.
