how to calculate the real effective exchange rate reer 
a nation s currency may be considered undervalued overvalued or in equilibrium with those of other nations that it trades with a state of equilibrium means that demand and supply are equally balanced and prices will remain stable a country s reer measures how well that equilibrium is being held reer is determined by taking the average of the bilateral exchange rates between one nation and its trading partners and then weighting it to take into account the trade allocation of each partner the bank for international settlements website provides updated effective exchange rate indices on a daily and monthly basis 1reer cern cern cern 100where cer country exchange rate begin aligned text reer text cer n times text cer n times text cer n times100 textbf where text cer country exchange rate end aligned reer cern cern cern 100where cer country exchange rate breaking down the formula some calculations use bilateral exchange rates while other models use real exchange rates the latter adjusts the exchange rate for inflation regardless of the way in which reer is calculated it is an average that indicates when a currency is overvalued in relation to one trading partner or undervalued in relation to another partner 