A country’s exchange rate calculated as a weighted average of its bilateral nominal exchange rates against other currencies. The weights are normally based on the value of trade with other countries. The effective exchange rate is a nominal and not a real exchange rate, but it helps to explain the contribution of exchange rates to changes in a country’s competitiveness better than simply looking at its rate against one currency, for example the US dollar, which may be distorted by variations peculiar to the particular foreign currency chosen.