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Practical Application: Using Exchange Rates to Convert Currency

Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

The world today is more connected than ever. People can shop for things from a store on the other side of the earth, even if the currency is different. Analyze several scenarios and an exchange rate table and then practice converting the currency in this application.

Currency Exchange

When people shop from a store in another country, a currency exchange occurs when they change the money they have into the money format used in the country they are shopping in. Most stores in other countries require that visitors use that country's form of currency. Banks can perform the currency exchange.

Exchange Rate Table

Each currency exchange is based on the currency exchange rate. This information is usually kept in table form for easy reference. For example, X-Rates provides current currency exchange rate tables for a variety of currencies. Here is the table for converting the US dollar into currencies of several other countries.

Currency exchange rate table
exchange rates

The lesson Exchange Rates & Currency Conversion explains how to use this table. First find the currency form to exchange to, then multiply the amount of US currency by the number in the 1.00 USD column. To convert to the Swiss Franc, multiply the US dollar by 0.990970.

Questions to Consider

Three scenarios follow providing currency exchange practice. Use these questions to help with the process.

  • What currency is in use in the country of interest?
  • Does the answer make sense?

If the currency in the other country is worth more than the US dollar, then the exchange will give a smaller number. If the currency in the other currency is worth less than the US dollar, then the exchange will give a larger amount.

Scenarios

United States to Japan

Fred is planning his summer travel plans. He is deciding between visiting Japan, Australia or China. One of his considerations is just how far his US dollar will go. The destination he ends up picking must give him a good exchange amount for his US dollar.

He doesn't want to end up with less, and would much rather end up with more. First, he checks just how much his US money is worth in Japan. Looking at the exchange rate table, how much will Fred's $1,200 be worth in Japan's currency?

Answer: In Japan, they use the Japanese Yen. According to the rate table, the exchange rate for converting the US dollar to the Japanese Yen is 112.684159. So multiplying Fred's $1,200 by 112.684159 gives this exchange amount:

  • $1,200 * 112.684159 = $135,220.99

This amount makes sense, as 1 US dollar is worth almost 113 Japanese Yen.

United States to Australia

Now, how much is Fred's $1,200 worth in Australia?

Answer: $1,690.56

United States to China

And how much is that $1,200 worth in China?

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