Currency Exchange Practice Work through each question as you read it, and then the answer will be on the next slide. Have fun!
You’ve just won a fabulous trip to Africa for a safari!!! Next June, you’ll be taken on a fabulous safari to South Africa for two wonderful weeks. Now it’s time to prepare. After getting a passport and visa, you start to think about other things.
Your first thought is that you’d better get some money to go. You find that South Africa uses a currency called the rand, and it’s designated as ZAR. You look at the exchange rates and find these numbers: 1 USD = 6.91567 ZAR 1 ZAR = 0.144599 USD Question 1: How many rand can you buy for $100? For $1000?
Answer Given the following exchange rates: 1 USD = 6.91567 ZAR 1 ZAR = 0.144599 USD If 1 USD = 6.91567 ZAR, then multiply both sides by 100 to get 100 USD = 691.567 ZAR 1000 USD = 6915.67 ZAR Note: If actually shopping you would round to two decimals for currency.
Next you start to order specialty equipment from a South African safari company. The catalog, printed in South Africa, lists the complete package cost for a “deluxe family gear kit” at ZAR 4,290. Question 2: What is this worth in dollars?
Answer –If 1 ZAR 0.144599 USD, then 4,290 ZAR (multiply both sides by 4290) is 620.32971 USD. –We could also have used division to solve this and said that 1 USD = 6.91567 ZAR, so we could divided 4,290 by 6.91567 to get 620.33035 USD. (The difference between the 2 answers is due to rounding.)
A friend tells you about the time last year when he lost tons of money on exchange rates because the rates changed right before he went on vacation. Question 3: Is there anything you can do about this?
Answer You can buy forward with the currency. That means that you go to a bank and buy the currency now to lock in a price, and then changes in the currency value won’t matter. Of course, you may lose the opportunity to make money if the currency changed in your favor, but you won’t lose money.
While in Africa, you go shopping. What would the following items cost? A local artist’s rendition of a zebra - 657 ZAR Replacement camera for the one eaten by a lion 1,533 ZAR
Answer 657 ZAR is 95.00 USD 1533 ZAR is 221.67 USD
Some of the other people on the safari are from Japan. One of them likes the zebra painting so much that he offers you 5,000 yen for the painting. Is this a good deal? 1.00 US Dollar = 83.6932 Japanese Yen 1.00 Japanese Yen = 0.0119484 US Dollar
Answer Given the following exchange rate 1.00 US Dollar = 83.6932 Japanese Yen 1.00 Japanese Yen = 0.0119484 US Dollar 5,000 Y = 59.74 USD If you paid about 95 USD, this is not a good deal.
Thinking that you may have a new business idea, you contemplate exporting goods from South Africa to the United States. On the next slide you can see the trend in the South African Rand compared to the U.S. dollar for the past six months. If the trend in currency value continues, what will happen to the price of exports as they go from S.A. to the U.S.?
Answer If you look at the chart, you will see that the number of Rand per dollar is going up. This means it takes less dollars to buy a specific amount of Rand. So the dollar is increasing in value against the Rand You can also say that it takes more Rands to buy dollars. Therefore the Rand is decreasing in value against the dollar.
That means that exports from South Africa to the U.S. will go down in price, because it will take fewer dollars to buy an item then it did before. For example, if something was 8.1 Rand last December, it would have taken about 1 USD to purchase it. By the end of November, it would take less than a dollar because one dollar would have bought 8.9 Rand). On the opposite side, the price of imports from the U.S. to South Africa would be increasing.
After thinking about all of these currency issues, you kick back on the way home with a newspaper listing about exchange rates. List ten country currencies that you will see in the paper. (Check your answers with the following link.) link