Dow Jones Indexes, a leading global index provider, and FXCM Inc. (NYSE: FXCM), a global online provider of foreign exchange trading and related services, today announced they have collaborated to launch the Dow Jones FXCM Yen Index.
The new index measures changes in the value of the Japanese yen against a basket of four of the most-transacted currencies against the yen: the U.S. dollar, the euro, the Australian dollar and the New Zealand dollar.
The index is the second to be offered collaboratively by Dow Jones Indexes and FXCM. In May 2011, the two firms launched the Dow Jones FXCM Dollar Index.
Both the Dow Jones FXCM Dollar Index and the new Dow Jones FXCM Yen Index follow a methodology that utilizes FX quantities as the basis of its calculation, rather than FX spot rates, to enhance transparency. With the goal of mimicking real-world FX portfolio construction, this approach also facilitates usage of the indexes as the basis for a wide range of instruments such as ETFs, mutual funds, forwards, futures, swaps, options, and structured products.
"We're pleased to build upon the success of the Dow Jones FXCM Dollar Index by offering investors a comparable index for the yen," said Michael A. Petronella, President, Dow Jones Indexes. "The Japanese foreign exchange market is the biggest in the world, and there is tremendous local and international investor interest in the yen. This index offers investors a unique tool for following the currency's relative value."
The index is constructed by initially equally weighting the following four currency pairs: USD/JPY, EUR/JPY, AUD/JPY and NZD/JPY. The index is reset to equal weighting only at rebalancings that occur in the event that the value of any single currency position declines by 90%, or in the case of qualified structural changes in the marketplace.
The four currency pairs were selected for the index primarily based on their liquidity and on real capital flows between the represented economies. Geographic diversification was another factor considered in selecting the currencies.