Explanation:

• Essentially, a currency’s exchange rate vis-a-vis another currency reflects the relative demand among the holders of the two currencies. This demand, in turn, depends on the relative demand for the goods and services of the two countries. Hence statement 1st is correct.
• If the US dollar is stronger than the rupee, then it shows that the demand for dollars (by those holding rupee) is more than the demand for rupees (by those holding dollars). Henec statement 3rd is correct.
• The Reserve Bank of India tabulates the rupee’s Nominal Effective Exchange Rate (NEER) in relation to the currencies of 36 trading partner countries. 
• This is a weighted index — that is, countries with which India trades more are given a greater weight in the index. 
• A decrease in this index denotes depreciation in rupee’s value; an increase reflects appreciation. 
• The Real Effective Exchange Rate (REER) and is essentially an improvement over the NEER because it also takes into account the domestic inflation in the various economies. Hence statement 2nd is incorrect.