# Effective exchange rate

Effective Exchange Rate is an index that describes the relative strength of a currency relative to a basket of other currencies.[citation needed] Suppose a country has $N$ trading partners and denote $Trade_i$ and $E_i$as the trade and exchange rate with country $i$ respectively. Then the effective exchange rate is calculated as:
$E_{effective} = E_1 \frac{Trade_1}{Trade} + ... + E_N \frac{Trade_N}{Trade}$