Trade-weighted exchange rate
Definition. A trade weighted exchange rate is an index that measures the value of a currency against a basket of the currencies of its main trading partners, with each currency weighted according to its share in the country trade. It gives a broader picture of external value than any single bilateral rate.
The Monetary Authority of Singapore manages the Singapore dollar against such a trade weighted basket within an undisclosed policy band, adjusting the slope, width, and centre of the band as the chosen instrument of monetary policy.
This term belongs to Exchange Rate Policy in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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