Consider the following statements about Real effective exchange rate REER and identify incorrect one...........

Economic Affairs Balance of Payments

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Consider the following statements about Real effective exchange rate (REER) and identify incorrect one.

It is an indicator of trade competitiveness of a country

In REER calculation inflation is taken into consideration

Reserve Bank uses CPI to compute REER.

All of the above statements are correct

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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.
The REER is used to measure the value of a specific currency in relation to an average group of major currencies.
The REER takes into account any changes in relative prices and shows what can actually be purchased with a currency. This means that the REER is normally trade-weighted.
In 2014, with the availability of all India CPI index for India, the Reserve Bank has now decided to compute and provide data on REER using new CPI for India.