Business, Legal & Accounting Glossary
The US Dollar Index is an index that measures the value of the US dollar compared to other major currencies. The US Dollar Index was launched in 1973 by the New York Board of Trade (NYBOT). At its inception, the US Dollar Index was set at a base value of 100. The US Dollar Index includes the exchange rates of the following six currencies: euro (EUR), Japenese Yen (JPY), Pound sterling (GBP), Canadian dollar (CAN), Swedish krona (SEK), and Swiss franc (CHF).
The formula to compute the US Dollar Index is:
US Dollar Index = 50.14348112 * ((EURUSD ^ 0.576) * (JPYUSD ^ 0.136) * (GBPUSD ^0.119) * (CANUSD ^ 0.091) * (SEKUSD ^ 0.042) * (CHFUSD^.036) ).
Each exponent applied to the exchange rates represents the currency’s weight in the US Dollar Index. At 0.576, the euro has the greatest weight of all currencies included in the US Dollar Index. The US Dollar Index formula had to be changed once to account for the introduction of the euro, but the current factor and weights used in the US Dollar Index formula are not intended to be adjusted as with other indices whose weights vary with trading volume or capital flow.
The US Dollar Index is calculated around the clock and is listed on the ICE Futures Exchange. The US Dollar index is sometimes confused with the Federal Reserve trade-weighted exchange index. Although both the US Dollar Index and the Federal Reserve index are computed using exchange rates, unlike the Federal Reserve trade-weighted exchange index, the value of the US Dollar Index does not change with international trading activities. Investors can trade the US Dollar Index via a variety of exchange-traded funds (ETFs), futures, options, and mutual funds.
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This glossary post was last updated: 5th February, 2020 | 2 Views.