Economics Exchange Rates Questions
A trade-weighted exchange rate is a measure of the value of a country's currency relative to a basket of other currencies, weighted according to the importance of each currency in the country's international trade. It takes into account the overall trade relationships of a country.
On the other hand, a bilateral exchange rate is the rate at which one currency can be exchanged for another currency. It represents the value of one currency in terms of another currency. It only considers the exchange rate between two specific currencies.
In summary, the main difference between a trade-weighted exchange rate and a bilateral exchange rate is that the former considers the overall trade relationships of a country, while the latter only focuses on the exchange rate between two specific currencies.