Figure depicts the trend of real effective exchange rate (REER) index of Nepal. Since 2001, as REER of Nepal is appreciating, we 
are losing competitiveness in global trade. The formula used to calculate REER is REERt = Summation[TWit * { Eit*(Pit/Pitf)}]. Where, i stands for ith trade partner of Nepal and t denotes year, P domestic price level, Pf foreign price, TW is trade weight. REER has been constructed by using data of exchange rate of Nepali Rupees with two currencies, IC and US$. Moreover, here exchange rate is calculated as price of domestic currency in terms of foreign currency. Two currencies are used to construct REER because India is Nepal’s largest trade partner, about 70 percent trade is with India, and remaining trade occurs almost in US$. In addition, except a few countries Nepal's trade with other countries is insignificant; there is no long period time series data of trade with all countries.
are losing competitiveness in global trade. The formula used to calculate REER is REERt = Summation[TWit * { Eit*(Pit/Pitf)}]. Where, i stands for ith trade partner of Nepal and t denotes year, P domestic price level, Pf foreign price, TW is trade weight. REER has been constructed by using data of exchange rate of Nepali Rupees with two currencies, IC and US$. Moreover, here exchange rate is calculated as price of domestic currency in terms of foreign currency. Two currencies are used to construct REER because India is Nepal’s largest trade partner, about 70 percent trade is with India, and remaining trade occurs almost in US$. In addition, except a few countries Nepal's trade with other countries is insignificant; there is no long period time series data of trade with all countries. 
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