Real Effective Exchange Rate - REER

Loading the player...

DEFINITION of 'Real Effective Exchange Rate - REER'

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 balances, in terms of one country's currency, with each other country within the index.

BREAKING DOWN 'Real Effective Exchange Rate - REER'

This exchange rate is used to determine an individual country's currency value relative to the other major currencies in the index, as adjusted for the effects of inflation. All currencies within the said index are the major currencies being traded today: U.S. dollar, Japanese yen, euro, etc.

This is also the value that an individual consumer will pay for an imported good at the consumer level. This price will include any tariffs and transactions costs associated with importing the good.

RELATED TERMS
  1. Inflation

    The rate at which the general level of prices for goods and services ...
  2. Tariff

    A tax imposed on imported goods and services. Tariffs are used ...
  3. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  4. Balance Of Trade - BOT

    The difference between a country's imports and its exports. Balance ...
  5. Base Currency

    The first currency quoted in a currency pair on forex. It is ...
  6. Weighted Average

    An average in which each quantity to be averaged is assigned ...
Related Articles
  1. Investing Basics

    Explaining the Real Effective Exchange Rate

    The REER is a measure of the weighted average of a country’s currency against an inflation-adjusted and trade-weighted index of other currencies.
  2. Options & Futures

    A Primer On The Forex Market

    Moving from equities to currencies requires you to adjust how you interpret quotes, margin, spreads and rollovers.
  3. Forex Education

    Currency Exchange: Floating Rate Vs. Fixed Rate

    Baffled by exchange rates? Wonder why some currencies fluctuate while others are pegged? This article has the answers.
  4. Bonds & Fixed Income

    6 Factors That Influence Exchange Rates

    Find out how a currency's relative value reflects a country's economic health and impacts your investment returns.
  5. Personal Finance

    5 Places Where Your Travel Dollar Goes Furthest

    The dollar is pretty strong right now, but where is it strongest? Canada? South Africa? Europe? Here are five places to travel to right now on a budget.
  6. Term

    Why Countries Keep Reserve Currency

    Central banks and financial institutions hold large amounts of foreign money as their reserve currency.
  7. Term

    How Does a Currency Peg Work?

    When a government initiates a currency peg, it pegs its currency’s value to that of another country.
  8. Investing Basics

    Explaining Fixed Exchange Rates

    A government using a fixed exchange rate has linked the value of its currency to the value of another country’s currency, or the price of gold.
  9. Forex Fundamentals

    How Foreign Exchange Affects Mergers and Acquisitions Deals

    Learn how foreign exchange rates can impact the flows of international merger and acquisition (M&A) transactions, and understand how deals can impact exchange rates.
  10. Professionals

    Why When China Sneezes the U.S. Catches a Cold

    The size and breadth of the Chinese economy will naturally affect the U.S. Making clients aware of it can help manage portfolio expectations.
RELATED FAQS
  1. What risks does a Foreign Institutional Investor (FII) face?

    The term "foreign institutional investor" (FII) normally refers to large, non-Indian companies investing in Indian financial ... Read Full Answer >>
  2. What is the purpose of the International Monetary Fund?

    The stated goals of the International Monetary Fund include offering policy advice to member governments and central banks; ... Read Full Answer >>
  3. How are international exchange rates set?

    International currency exchange rates display how much one unit of a currency can be exchanged for another currency. Currency ... Read Full Answer >>
  4. How often do exchange rates fluctuate?

    Exchange rates float freely against one another, which means they are in constant fluctuation. Currency valuations are determined ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center