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Inside the Currency Market: Mechanics, Valuation, and Strategies by Brian Twomey

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CHAPTER 3

Exchange Rates and Trade Weight Indices

This chapter will address all the necessary conditions and formulas to understand a true exchange rate and factor that true rate in terms of a basket of currencies in an index based on weights in the index according to each nation's currency and weight. These are known as trade weight indices (TWIs). To factor another nations's currency in a TWI sometimes holds the key to gauging the proper levels of exchange rates between nations. Many formulas and index-construction methodologies are provided for each nation to allow a true picture of an exchange rate but enough information is provided to allow anyone to form their own desired index.

The last factor of exchange-rate determination is to survey ...

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