abhishreshthaa
Abhijeet S
CURRENCY BASKET:
- A currency basket is a selected group of currencies in which the weighted average is used as a measure of the value or the amount of an obligation.
- It functions as a benchmark for regional currency movements - its composition and weighting depends on its purpose.
- The SDR's value is set daily using a basket of four major currencies: the Euro, Japanese yen, pound sterling, and U.S. dollar.
- Currency baskets are collections of securities with a weighted average that can be utilized to calculate the current value of any given debt, duty, or written promise.
- A currency basket is commonly used in contracts as a way of avoiding (or minimizing) the risk of currency fluctuations.
- The European currency unit (which was replaced by the euro) and the Asian currency unit are examples of currency baskets.
- Securities of this type may also be used to determine the current value of a currency that is different from the currency involved with the security under consideration.
- The composition of the basket is reviewed every five years to ensure that it is representative of the currencies used in international transactions, and that the weights assigned to the currencies reflect their relative importance.
- the use of a currency basket to evaluate the current value of a currency will involve considering several different currencies in order to obtain an average performance value over a broader scope.