The VARIANSE Trade Weighted Indices are based on Major Central Banks' basket exchange rates
They track the performance of a currency against a defined basket of currencies .
Each basket is limited to the currencies with the largest weights in the relevant central
banks officially published index. The respective weights are scaled up to 100%.
TWI's are a measure of the value of the currency relative to the currencies of the country's major trading partners.
The Index is the Central Banks' preferred summary measure for capturing the medium-term effect of exchange rate changes on the economy and inflation.
By utilising currency indices, traders no longer simply have the option of tracking single currency pairs - they can objectify, and analyse a specific macro-economic view.
The added benefit being that the underlying indices are less volatile than individual cross rates.
N = Number of components
Pair N = Market price of Nth Pair
2. Then we multiply the value A by the constant factor*
*A constant factor is used to turn the basket into an
index which sets the value of the basket to usually
equal 1 or 100 at a pre-determined date in the past,
this allows for easier tracking and simpler pricing.