Week 6

Currency Conversion

Foreign travel and international trade make it necessary for consumers to

transact business in currencies other than that of their home country.

All currencies do not have the same purchasing power hence sometimes

a currency of higher value must be converted to one of lower value and

vice-versa.

The conversion rate of currencies changes frequently depending on the

strength of a country’s economy.

In converting currencies, we multiply by the conversion rate when

converting from higher to lower currency and divide by the conversion

rate when converting from lower to higher currency.

In writing down the exchange rate, always state the higher currency on the

L.H.S and the lower currency on the R.H.S. we can summarize this as

follows:

× by exchange rate

Higher Lower
currency ÷ by exchange rate currency

There is always a bank charge when currencies are converted.

Example 1.

Given US $1 = GUY $ 200, how would an American tourist receive if he

exchanges US $500 and there is a bank charge of 5%?

Solution:

Multiply by the exchange rate since conversion is from higher to lower

currency.

Given US $1 = GUY $200

 Then US $500 = GUY $ (500 × 200)

= GUY $10 000

5
5% bank charge = $ (100 × 10 000)

= $ 500

Actual amount received = $(10 000 – 500)

= GUY $9 500

Alternatively,

Since there is a 5% bank charge, the tourist will receive 95% of the value in

GUY$.

That is, 95% of GUY $ 10 000

95
= $ (100 × 10 000)

= GUY $ 9 500

Example 2.

A Guyanese businessman converted GUY $50 580 to Trinidadian currency.

How much TT$ does he receive if the exchange rate is TT$ 1 = GUY $ 30 and

there is a 5% bank charge?

Solution:

Divide the exchange rate since conversion is from lower to higher currency.

50 580
GUY $ 50 580 = TT $ 30

= TT $1 686

Since there is 5% bank charge, then the businessman will receive 95% of the

value in TT$.

95
95 % of TT$ 1 686 = (100 × 1 686)
 = (95 × 16.86)

= TT$ 1 601.70

 Activity a  25 Minutes

(1) (a) A visitor from Jamaica exchanged JAM $ 1 500 for Guyana currency. How

much GUY$ did the visitor receive if the exchange rate was JAM $ 1 = GUY$

56 and there was a 5% bank charge.

(b) If the visitor spent GUY $ 50 000 and changed the remainder back to

Jamaican currency at the same rate of exchange, how much JAM$ would she

receive after paying a 5% bank charge (answer to the nearest JAM $).

(2) A Barbadian visited Trinidad for carnival. He exchanged BD $750 for TT $.

How much TT$ did the Barbadian receive if BD $ 1 = TT$ 3.20 and there was

a 5 % bank charge?

– SUMMARY

 In computations involving foreign exchange, we multiply the exchange rate

when converting from higher to lower currency and divide by the exchange
rate when converting from lower to higher currency.

 When stating the exchange rate, the higher currency is on the L.H.S, e.g.

US $1 = GUY $200

TT $1 = GUY $30

BD $1 = TT $3.20

Answers to Activities

Activity a.
(1) (a) GUY $79 800

(b) JAM $506

(2) TT $2 280