Exchange rate calculation Flashcards
What is an exchange rate?
The value of one currency in terms of another currency.
How do you convert from a foreign currency to your local currency?
Multiply by the exchange rate.
Formula: Foreign currency × Exchange rate = Local currency
Example: £1 = $1.25
Convert £100 to dollars:
£100 × 1.25 = $125
How do you convert from local currency to a foreign currency?
Divide by the exchange rate.
Formula: Local currency ÷ Exchange rate = Foreign currency
Example: £1 = $1.25
Convert $250 to pounds:
$250 ÷ 1.25 = £200
How does a strong currency affect imports and exports?
+ Imports become cheaper – You can buy more foreign goods.
- Exports become more expensive – Foreign buyers may buy less.
How does a weak currency affect imports and exports?
✅ Exports become cheaper – Foreign buyers can buy more.
❌ Imports become more expensive – Costs of buying foreign goods increase.
What is international competitiveness?
A country’s ability to sell its goods and services at competitive prices in global markets.
How does a strong currency affect international competitiveness?
❌ Exports become more expensive – Foreign buyers may switch to cheaper alternatives.
✅ Imports become cheaper – Businesses can buy cheaper raw materials and goods.
❌ Tourism declines – Foreign visitors may find the country too expensive.
How does a weak currency affect international competitiveness?
✅ Exports become cheaper – More competitive in global markets.
❌ Imports become more expensive – Increases costs for businesses that rely on foreign goods.
✅ Boosts tourism – Foreign visitors find it cheaper to travel and spend.
How can businesses respond to exchange rate changes?
✅ Adjust pricing – Change prices to stay competitive.
✅ Source materials locally – Reduce dependence on foreign suppliers.
✅ Expand markets – Focus on countries where the currency makes exports attractive.
