Consider the following statements 1 REER is the weighted average of a country 39 s cu...........

Economic Affairs Balance of Payments

Consider the following statements:

1. REER is the weighted average of a country's currency relative to an index or basket of other major currencies.

2. The weights are determined by comparing the relative trade balances, in terms of one country's currency, with each other country within the index.

3. REER is adjusted for the effects of inflation.

Which of the statements mentioned above is/are correct?

1 only

1 and 2

2 and 3

All of above

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Explanation:

All the statements are correct.
The real effective exchange rate (REER) is the weighted average of a country's currency relative to an index or basket of other major currencies, adjusted for the effects of inflation. The weights are determined by comparing the relative trade balance of a country's currency against each country within the index. This exchange rate is used to determine an individual country's currency value relative to the other major currencies in the index, such as the U.S. dollar, Japanese yen and the euro.