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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 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 = 6.351 ZAR 1 ZAR = 0.157455 USD Question 1: How many rand can you buy for $100? For $1000?
Answer 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?
Answer • 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. • 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.
A local artist’s rendition of a zebra - 657 ZAR Replacement camera for the one eaten by a lion 1,533 ZAR While in Africa, you go shopping. What would the following items cost?
657 ZAR is 103.45 1533 ZAR is 241.38 USD Answer
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
Answer 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.?
Answer • If you look at the chart, you will see that the number of Rand per dollar is going down since November. It has been going up over the course of the entire year. • For the entire year, if the rand is going up, this means it takes more Rand to buy a dollar, or fewer dollars to buy a Rand. • So the Rand is decreasing in value against the dollar. (Each Rand can buy fewer dollars.)
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 6.2 Rand in January, it would have taken more than 1 USD to purchase it. By the first part of November, it would take less than a dollar. (One dollar would have bought 6.7 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.