Currency Exchange Practice

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Currency Exchange Practice - PowerPoint PPT Presentation

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!!!.

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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

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 = 6.351 ZAR

1 ZAR = 0.157455 USD

Question 1: How many

\$100? For \$1000?

Given the following exchange rates as of 12/05/2005

1 USD =    6.351 ZAR

1 ZAR = 0.157455 USD

• If 1 USD = 6.351 ZAR, then multiply both sides by 100 to get 100 USD = 635.10 ZAR
• 1000 USD = 6351 ZAR

Note: We’ll 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?
• If 1 ZAR = 0.157455 USD, then 4,290 ZAR (multiply both sides by 4290) is 675.48 USD.
• We could also have used division to solve this and said that 1 USD = 6.351   ZAR, so we could divided 4,290 by 6.351 to get 675.48.
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.
• 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.
A local artist’s rendition of a zebra - 657 ZAR

Replacement camera for the one eaten by a lion

1,533 ZAR

657 ZAR is 103.45

1533 ZAR is 241.38 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 24,000 yen for the painting. Is this a good deal?

1.00 US Dollar = 120.77 Japanese Yen

1.00 Japanese Yen = 0.0082802 US Dollar

Given the following exchange rate

• 1.00 US Dollar = 120.77 Japanese Yen
• 1.00 Japanese Yen = 0.0082802 US Dollar

24,000 Y = 198.72 USD

If you paid about 107 USD, this is 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 year. 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.?