Trade-Weighted Exchange Rate Calculation Steps:

• Apply 60% weight to Y's bilateral rate: initial 100 falls 20%, so 100 × 0.80 = 80.
• Apply 40% weight to Z's bilateral rate: initial 100 rises 10%, so 100 × 1.10 = 110.
• Compute weighted average: (0.60 × 80) + (0.40 × 110) = 48 + 44 = 92. Why C is correct:
• Trade-weighted index formula uses trade shares to average bilateral changes: 92 matches the calculation. Why the others are wrong:
• A: Assumes equal weights, yielding (80 + 110)/2 = 95, not 84.
• B: Applies unweighted changes to total index, ignoring bilateral adjustments.
• D: Reverses directions, treating both as appreciations for false gain. Final answer: C