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weighted average exchange rate

The weighted average exchange rate, for an accumulated FX exposure is an average of the exchange rates used in the valuation of each portion of the exposure, weighted by its size. For example, a company with USD as its functional currency has an exposure of EUR 100 valued at the exchange rate of EUR-USD 1.30, and an additional exposure of EUR 200 valued at EUR-USD 1.00.

The corresponding weighted-average exchange rate, also known as WAER, is 1.10 = (100 x 1.3 + 200 x 1.0) / 300. The WAER is calculated for each currency pair. It allows companies to track their overall exposure as new pieces of exposure are incorporated, each at a different exchange rate. FX automation allows firms to instantaneously calculate both the WAER and their exposure in any currency pair, which turns out to be especially useful for firms with numerous small-size FX-denominated transactions.


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