Here below are common questions regarding the exchange rate index as well as their answers.
What is the exchange rate index?The exchange rate index is the geometric mean of the exchange rates of major currencies against the Icelandic króna. A rise in the index indicates a decline in the exchange rate of the króna. The exchange rates of the foreign currencies are weighted together according to the composition of Iceland’s external trade. The selection of currencies and the weights used in the exchange rate index are discussed in greater detail under the link Revised currency baskets.
Where can data on exchange rates be found?Exchange rate listings can be found under the link Official exchange rate. Exchange rates of other currencies can be found on a number of websites, including oanda.com. The Central Bank of Iceland cannot be held liable for information found on such websites or for use of such information; furthermore, the Bank wishes to remind the reader of the general disclaimer concerning the reliability of data on the internet, which can be found on the Copyright and disclaimer page on this website.
When are exchange rates listed?The exchange rate of the Icelandic króna is determined in the foreign exchange market, which is open between 9:15 hrs. and 16:00 hrs. on weekdays. Once a day, the Central Bank of Iceland fixes the official exchange rate of the króna against foreign currencies, for use as a reference in official agreements, court cases, and other contracts between parties that do not specify another reference exchange rate; cf. Article 19 of the Act on the Central Bank of Iceland, and lists the official exchange rate index at the same time. This is done around 16:00 hrs. each day that regulated foreign exchange markets are in operation. Under extraordinary circumstances, the Central Bank may temporarily suspend its quotation of the exchange rate of the króna.
How can the exchange rate of the króna be calculated from the exchange rate index?
The exchange rate index or trade weighted index (TWI) measures the exchange rate of foreign currencies against the Icelandic króna. The exchange rate of the Icelandic króna versus foreign currencies is therefore the reciprocal of the exchange rate index:
The percentage change in the exchange rate of the króna between two periods can be calculated using the exchange rate index in the following manner:
where TWIt is the exchange rate index at time t and TWI(t-k) is the value of the index k periods previously.
If the average value of the exchange rate index was 200.9927 in 2015 and 179.6289 in 2016, the percentage change in the exchange rate of the króna between years is as follows:
Therefore, on average, the exchange rate of the Icelandic króna rose by 11.89% between 2015 and 2016.