Foreign exchange
What is the exchange rate?
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. Exchange rate is also usually reffered to as a foreign-exchange rate, forex rate, or FX rate.
Exchange rate is also regarded as the value of one country’s currency in terms of another currency. or example, an interbank exchange rate of 91 Japanese yen (JPY, ¥) to the United States dollar (US$) means that ¥91 will be exchanged for each US$1 or that US$1 will be exchanged for each ¥91.
Exchange rates are determined in the foreign exchange market, hich is open to a wide range of different types of buyers and sellers where currency trading is continuous: 24 hours a day except weekends. The spot exchange rate refers to the current exchange rate. The forward exchange rate refers to an exchange rate that is quoted and traded today but for delivery and payment on a specific future date.
The exchange rate will be given to you and tells you how much foreign currency you get for one pound. For example the exchange rate for Pounds Sterling is 1.28 Euros, this means that £1 = 1.28 Euros.
How do we use the exchange rate?
We use it to work out how much money we would have in a different currency:
Exchange rate
Thus the woman has €512 for Europe.
We want to know how many Euros she can get for £400
To work this value out we use the formula:
From the question we know that:
Thus we sub into the formula:
As 1.28 x 400 = 512 we know that the amount of foreign currency (in this case Euros) that the woman has is 512.
| Place | Exchange rate for Pounds Sterling |
|---|---|
| Europe | 1.28 Euros |
| Japan | 177.54 Japanese Yen |
| Russia | 63.61 Russian Ruble |
| USA | 1.62 US Dollars |
Using this table of exchange rates work out how many dollars a man will get if he saves up £123 for his trip to the United States of America.
Thus the man has $199.26 to take to the USA.
We want to know how many dollars he can get for £123
To work this value out we use the formula:
= Amount of Foreign Currency
From the question we know that:
Thus we sub into the formula:
As 1.62 x 123 = 199.26 we know that the amount of foreign currency (in this case dollars) that the man has is 199.26.
Thus the woman and the man have ¥57,054.25 to take to Japan.
We want to know how much yen they can get for £187.96 and £133.40
To work this value out we use the formula:
From the question we know that:
Thus we sub into the formula:
As 177.54 x (187.96 + 133.40) = 57,054.25 (2 d.p.) we know that the amount of foreign currency (in this case yen) that the man and the woman have is 57,054.25.
How else can we use the exchange rate?
We can also use it to work out how much British money we have if we change our foreign currency back:
Thus the woman has £400 in the UK.
We want to know how many pounds she can get for €512
To work this value out we use the formula:
From the question we know that:
Thus we sub into the formula:
As 512 / 1.28 = 400 we know that the amount of British currency that the woman has is 400.
Thus the man has £61.73 back in the UK.
We want to know how many pounds he can get for $100
To work this value out we use the above formula:
From the question we know that:
Thus we sub into the formula:
As 100 / 1.62 = 61.73 we know that the amount of British currency that the man has is 61.73.
From the above two questions we know that:
…we also know that;
Thus they have
Thus they have £29,370.65 to spend in Russia.
Explanation
