INVESTMENT TOOLS - CURRENCY INDEXES

CURRENCY INDEXES
FEDERAL RESERVE TRADE-WEIGHTED DOLLAR
What Is This Tool?
The index reflects the currency units of more than 50 percent
of the U.S. purchase, principal trading countries.
How Is It Computed?
The index measures the currencies of 10 foreign countries:
the United Kingdom, Germany, Japan, Italy, Canada, France, Sweden,
Switzerland, Belgium, and The Netherlands. The index is weighted by each currency’s
base exchange rate and, then, averaged on a geometric basis. This weighting
process indicates relative significance in overseas markets. The base year was 1973.
Where Is It Found?
The index is published by the Federal Reserve System
and is found in its Federal Reserve Bulletin or at various Federal Reserve Internet
sites such as http://woodrow.mpls.frb.fed.us/economy.
How Is It Used for Investment Decisions?
The investor should examine the trend in this index to determine foreign exchange risk exposure associated with his or her investment portfolio.
Also, the Federal Reserve trade-weighted dollar is the basis for commodity
futures on the New York Cotton Exchange.
Also See: British Pound, German Deutsche Mark.
J.P. MORGAN DOLLAR INDEX
What Is This Tool?
The index measures the value of currency units vs. dollars.
How Is It Computed? The index is a weighted-average of 19 currencies
including that of France, Italy, the United Kingdom, Germany, Canada, and Japan.
The weighting is based on the relative significance of the currencies in world markets.
The base of 100 was established for 1980 through 1982.
Where Is It Found?
The index appears in The Wall Street Journal.
How Is It Used for Investment Decisions?
The index highlights the impact of foreign currency units in U.S. dollar terms. The investor can see the effect of foreign
currency conversion on U.S. dollar investment.