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# Mean value of a dollar

Discussion in 'Financial Futures' started by welo, Jun 7, 2003.

1. ### welo

First off, forgive me if this sounds like something I should already know. I'm a newbie trader .

I have a pretty good grasp on the mechanics of the commodities market, yet treating a currency as a commodity is a new concept to me and I'm trying to wrap my head around how the close prices are determined for currencies.

F.ex. on 05 June the US Dollar closed at 92.59. Assuming the ideal average for the dollar would indeed be 1.00, exactly how is this 1.00 figure derived? I've asked around and received various answers, most involving tap dancing.

Any perspective is appreciated.

3. ### maglia rosaGuest

The number you were looking at is the dollar index, a geometric-weighted index of the dollar against a basket of other currencies weighted by trade-weight. There are futures tradable on the NYMEX, which is part of the NYBOT (www.nybot.com).
Also, there is a paper on that website which explains how the index is calculated and what the characteristics of a geometric-weighted index are.
The index was probably set to 100 at its initiation, so that's where the 100 comes from.

4. ### welo

Ahh. Nitro's pdf on the Australian dollar was a pretty decent point of reference, and led me to look for This One on the nybot site. Is this the article you were referring to, maglia?

According to this, an index formula is derived from six geometrically weighted currencies: Euro, Yen, Sterling, Canadian Dollar, Swedish Kroner, and Swiss Franc, in a manner like so:

I suspect the Nash Equilibrium is factored into this somewhere, but I can't prove it yet.

5. ### maglia rosaGuest

Yes, that is indeed the paper I referred to.
Arguable re the Nash equilibrium... some people consider currencies to follow a random walk, and as such not be covariance-stationary (no mean-reversion, no finite variance).
Are you researching this topic with an academic interest?

6. ### welo

More for personal and business reference, I'd say. I'm a 37 yr-old web developer and obtained a client about a year ago who needed a site makeover for a trading system they had developed. During the process of building hundreds of pages explaining its theory I was kind-of inducted into trading by osmosis.

For about 7 months now I've been preparing to launch a series of web services specifically for traders and financiers, found this forum awhile back during the course of planning it, and have been lurking intermittently ever since. Lots of smart people and good info in this place.

Just figured it was time to do a little more direct brain-picking around here rather than doing it by proxy. Hope you guys don't mind.

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