Currency Conversion

Currency and Exchange Rate

Each country (or region) has its own monetary unit, called a currency. Examples: the USA uses the dollar, the United Kingdom uses the pound, and many European countries use the euro.

 

A currency has a different value compared to other currencies. This value is called the exchange rate. The exchange rate indicates how much one currency is worth measured in another currency.

 

Example: If 1 euro costs 1.10 US dollars, we say the exchange rate is:

 

$$ \large 1\ \text{EUR} = 1.10\ \text{USD} $$

 

Conversion between currencies

To convert from one currency to another, you use a fraction between the two exchange rate values:

 

$$ \large \text{Amount in currency A} \cdot \frac{\text{rate of A}}{\text{rate of B}} = \text{Amount in currency B} $$

 

Example:

If you have 200 euros, and the rate is 1 euro = 1.10 dollars, then you get:

 

$$ \large 200 \cdot 1.10 = 220\ \text{USD} $$

 

If you want to know how many euros you can get for 220 dollars:

 

$$ \large \frac{220}{1.10} = 200\ \text{EUR} $$

 

Exchange rate lists

Exchange rates change constantly because they are determined by supply and demand in the international currency market.

When you look at an exchange rate list, you will usually see two rates for each currency:

 

• Buying rate: the price the bank pays you if you sell currency.
• Selling rate: the price you pay if you buy currency.

 

The difference between the two is the bank’s fee for carrying out the exchange.

 

Summary

• Currency is a country’s monetary unit (e.g. euro, dollar, pound).
• The exchange rate shows how much one currency is worth compared to another.
• Conversion is done by multiplying with the ratio of the rates.
• Exchange rate lists show daily rates, and there is a difference between buying and selling rates.