Abstract: The construction of the RMB effective exchange rate index can be discussed from the two angles of risk free financial assets and risk financial assets. On the basis of the theory of the covered interest parity, the financial effective exchange rate index built from the perspective of risk free financial assets transits its focus from the effective exchange rate index at sight to the forward effective exchange rate index, which can improve the RMB financial effective exchange rate index system from the perspective of financial assets, thus it can be used to measure the pressure on increase and decrease in value that RMB is faced, providing the investors with foresight references to weigh the external value of a currency. The results indicate that the differences between the trends of RMB financial effective exchange rate index under different time limits are mainly caused by the factor of interest margin both at home and abroad, but the fluctuation of the spot rate is the major factor influencing the trends.

Key words: interest rate parity, risk free financial assets, interest margin, effective exchange rate index