Exchange Volatility Index (EVI)
A definition-first framework for measuring currency exchange-rate volatility.
One-Sentence Definition
Exchange Volatility Index (EVI) is a normalized measure of how much exchange rates are expected to fluctuate over a defined horizon, typically expressed as an annualized percentage.
What It Measures
- Magnitude of FX variability: the typical size of exchange-rate moves over the horizon.
- Market-implied uncertainty (if option-based): expectations embedded in FX option prices.
- Realized instability (if return-based): volatility observed from spot or forward rate changes.
Why an Index Matters
“Volatility” is widely used but often underspecified. An index forces the question: volatility of which rate, over what window, measured how, and aggregated in what way? A consistent definition makes comparisons across currency pairs, time periods, and research notes more interpretable.
Common Use-Cases
- Risk management: monitoring FX risk conditions for hedging, limits, and stress testing.
- Macro & policy analysis: relating currency uncertainty to rates, inflation, and capital flows.
- Trading & execution: sizing positions, setting stops, and evaluating “risk-on/risk-off” regimes.
- Corporate treasury: budgeting hedge costs and evaluating exposure sensitivity.
Scope & Terminology Note
“Exchange Volatility Index” is used in this site as a definition-first concept: a family of ways to quantify FX volatility. It is not presented as an official or proprietary index unless a specific sponsor’s methodology is explicitly referenced elsewhere.
Related Reference Indices
Consider: market volatility indices (e.g., equity implied volatility), rates volatility measures, and liquidity / stress indices.