Countries around the world are classified into three broad categories purposely for analytic use. The grouping of these countries is intended to reflect the status of their economic conditions. The countries are grouped as advanced economies, developing economies and least developed according to some criteria. In most cases the countries are grouped basing on their Gross National Income per capita per year. A country is said to be a developing country if her Gross National Income stands at US$ 11900 or less. A developing country is said to be still undergoing industrialization and has low human development index. A ...
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The exchange rates in the market are bilateral, that is, comparing the values of a currency against the other. However there is a need to compare a currency with that of several counties .Effective Exchange Rate refers to the index describing the strength of a county’s currency in reference to the basket with other currencies. Let’s assume a country has M trading partners denoted by Trade i and Ei representing the trade and the exchange rates with country i. The effective exchange rate will be calculated as: E effective =E1Trade1Trade+. + EM TradeMTrade
The Effective exchange Rate is divided into two namely: The Nominal Effective Exchange Rate and The Real Effective Exchange Rate.
Nominal Effective Exchange Rate (NEER): This is the ...