| The U. S. Dollar Index is an index for currency | | | | percent. The other five countries in the basket make |
| traders, and it consists of a geometric weighted | | | | up a combined total of forty three percent of the |
| average of a basket of foreign currencies against the | | | | basket, with euros consisting of the other fifty |
| United States Dollar. The U.S. Dollar Index, just like | | | | seven percent. |
| stock indexes, provides a general indication of the | | | | The Federal Reserve uses another kind of dollar |
| value of a basket of securities. In this case the | | | | index, and this is called the trade-weighted U.S. Dollar |
| basket holds securities that consist of other major | | | | Index. This index was created by the Feds to more |
| world currencies. | | | | accurately reflect the value of the dollar against |
| The U.S. Dollar Index has a basket that consists of | | | | foreign currencies based on the competitiveness of |
| six foreign currencies. These are the Euro, the Yen, | | | | U.S. goods compared to other countries. The biggest |
| the Cable, the Loonie, the Kronas, and the Francs. | | | | difference between these two indexes is the basket |
| The index is made up of six currencies, but it includes | | | | of currencies that are used as well as the relative |
| seventeen countries. This is because there are | | | | weights of the currencies. The weights are based on |
| twelve members of the European Union, plus Japan, | | | | annual trade data, and this is why it is called the |
| Great Britain, Canada, Sweden, and Switzerland. | | | | trade weighted U.S. Dollar Index. |
| These seventeen countries may only be a small | | | | No matter which U.S. Dollar Index you are looking at, |
| percentage of the countries in the world, but there | | | | these indexes help Forex traders know the value of |
| are many other currencies that follow the U.S. Dollar | | | | the United States Dollar, and the global strength as |
| Index closely. The index is a great tool for measuring | | | | well. Forex traders use these indexes to help them |
| the global strength of the United States Dollar. | | | | determine the value of a currency when compared |
| The components of the U. S. Dollar Index have a | | | | to the U.S. Dollar. There are two U.S. Dollar Indexes, |
| geometric weighted average. This is to factor in the | | | | and the second one is called trade weighted U.S. |
| fact that not every country is the same size, so | | | | Dollar Index. This index is based more on actual trade |
| each country is given an appropriate weight when | | | | data, but countries are given weights in this index as |
| the U.S. Dollar Index is calculated. Euros account for a | | | | well. |
| large portion of the U.S. Dollar Index, more than fifty | | | | Copyright © 2007 Joel Teo. All rights reserved. |