Which of the following statements is/are correct about the Nominal Effective Exchange Rate (NEER)?

1. NEER is a measure of the value of a currency against a weighted average of several foreign currencies.

2. An increase in NEER indicates an appreciation of the local currency against the weighted basket of currencies of its trading partners.

Select the correct answer using the code given below:

• The NEER is a measure of the value of a currency against a weighted average of several foreign currencies.

• An increase in the NEER indicates an appreciation of the local currency against the weighted basket of currencies of its trading partners.

• The NEER only describes relative value. It cannot definitively show whether a currency is strong or gaining strength in real terms.

• It only describes whether a currency is weak or strong, or weakening or strengthening, compared to foreign currencies. As with all exchange rates, the NEER can help identify which currencies store value more or less effectively. Exchange rates influence where international actors buy or sell goods.

• The NEER is used in economic studies and for policy analysis on international trade. It is also used by forex traders who engage in currency arbitrage. The Federal Reserve calculates three different NEER indices for the United States: the broad index, the major currencies index and the other important trading partners (OITP) index.