The effective exchange rate index describes the strength of a currency relative to a basket of other currencies. Although typically the basket is trade weighted, there are others besides the trade-weighted effective exchange rate index. Value of the benchmark currency basket at time t = Σ (GDP weight of currency i(dated 2 years ago from year of time t)* normalized exchange rate of currency i against the US dollar at time t; Effective exchange rate of currency j = Normalized exchange rate of currency j against the US dollar/Value of the benchmark currency basket against US dollar[1]