Suppose a country trades with three countries Brazil 20 of t

Suppose a country trades with three countries: Brazil (20% of trade), China (45%), and France (35%). Over the last year, the currency of this country has depreciated by 4% against the Brazilian real, appreciated by 3% against the Chinese yuan, and depreciated by 7% against the euro. What has happened to the effective exchange rate of the country?

Solution

Solution: The effective exchange rate of the country has been depreciated by 1.9 percent

Explanation: (20%*4) + (45% * -3) + (35%*7) = 1.9