Currency trading is a very intimate affair. It might not involve candlelight and fine wine. But it does always happen in couples...or pairs, as it's known in the industry.
When you ask, "What's the dollar worth?" the question generally requires a one-on-one style response. You really should ask, "What's the dollar worth versus the euro?" or "What's the dollar worth versus the yen?"
The nominal effective exchange rate attempts to provide a more general answer to the value question. Instead of forcing you to focus on a single trading pair (dollar vs. euro, dollar vs. yen, etc.), it calculates a value using a basket of currencies.
The NEER gives an unadjusted weighted average value of a currency's value against a group of other world currencies. The goal is to provide a more general look at how a particular currency is doing on the forex market, rather than looking at the situation pair by pair.
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Finance: What is Nominal Rate?32 Views
finance a la shmoop. what is the nominal rate?
hmm well a nominal rate is the named rate of interest on a bond. here's a bond
Eastern Airlines famously bankrupt a zillion years ago. but what's key here is [bond shown]
the nominal rate on the face of the bond right here. that .you see that 11 and 3/4
percent thing? that's the nominal rate the named rate of interest on the bond.
but when the bond was sold it was actually somewhat better than lukewarm
or almost hot offering and it sold for a hundred five cents on the dollar or a
five percent premium to the nominal rate. so investors did not in fact receive the [woman holds bond]
nominal rate because they paid slightly more than the thousand dollars our value
of the bond. they paid a thousand fifty. so instead they received eleven point
seven five divided by 1.05 or about eleven point two percent in interest.
that was the real return they got. the 11 and three-quarters percent? yeah that's [equation shown]
the nominal. rate the named rate and the performance of the bond well, it was not
phenomenal. [graph shows bankruptcy]
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