Index (USDX) is a geometric weighted average of ten T major foreign exchange (FX) rates, expressed in index form relative to the geometric weighted average of March 1973 (the base).* Formally, if we denote by Si and Bi the spot FX rates of country i expressed in "American terms" (U.S. dollars per foreign currency unit) now and in the base period, respectively, and let w i denote the weight of country i in the USDX, then the current index value, I , is given by (Bis and wis are given in the appendix).
USDX based futures contracts have been traded on the Financial Instrument Exchange (FINEX) a division of the New York Cotton Exchange since November 20, 1985. FINEX compiles the index value every thirty seconds from spot quotations of hundreds of major contributors throughout the world.2 The USDX futures contracts specifications are delineated in the Appendix.
We would like to thank Betsey M. Rhoads from the FINEX for kindly providing us with the data, as well as with other useful information about the USDX futures contracts, and an anonymous reviewer for helpful comments.
'The base period was chosen to roughly coincide with the beginning of generalized floating FX rates. *The USDX parallels the trade-weighted dollar index established by the Federal Reserve Board in the early 1970's and published regularly in financial and business publications. The formula. the currencies and the currency weights used for the FRB statistic are the same as those used in calculating the USDX. Slight deviations in the USDX from the FRB's may occur because the means of determining exchange rates differ. The FRB determines its index value once daily and disseminates it weekly, based on a representative sampling of exchange rates from financial institutions in New York City. In addition, while the FRB only uses currency bid prices, the USDX is calculated using both bids and offers.