An exchange rate is the value that one currency has when it is converted into another.
For example, an exchange rate of 48 Indian Rupees (₹INR) to 1 New Zealand Dollar ($NZD)
means that ₹48 can be converted to $1, or $1 can be converted to ₹48.
Exchange rates are fluid. They continually change to mirror a range of economic factors –
supply and demand, foreign investment, import/export rations, inflation etc…
Banks increase the cost of exchanging one currency into another so that they can make a
profit from customers. This means their ‘sell’ rate will be lower than their ‘buy rate’.
Key Formula: (local currency amount) x (exchange rate) = foreign currency amount
The Smith family have decided to go on holiday to London
(England). They fly out from Auckland and on the way they stop in
Sydney (Australia) to visit some friends. Before they come home
again they stop in Paris (France) to go site seeing.
Answer the following questions to help the Smith family manage
their holiday money.
© Young Enterprise Trust 2015
1. Each place the family visits on their trip will require a different currency. Mr Smith wants to
exchange NZ Dollars into other currencies before leaving New Zealand. Each bank has a slightly
different rate that they sell the currencies.
Below is a table displaying each banks sell rates for the currencies that Mr Smith needs. The table
shows the amount of each currency that Mr Smith will get for 1 NZ dollar.
XNZ
Commonwealth
Bank
Southern
Trust
England :
Pounds (£)
France : Euros
(€)
0.4899
0.4928
0.4901
0.6475
0.6882
0.6776
Australia :
Dollar ($)
0.9485
0.9537
0.9261
Which is the best bank for Mr Smith to exchange his money at?
a.
b.
c.
XNZ
Commonwealth Bank
Southern Trust
2. Mr Smith wants to change $600 NZD for each country they’re visiting.
How much would he get in each currency for $600? (Use the exchange rate from the bank you
chose in Question 1)
NZ$600 NZD
Pounds (£)
Euros (€)
Australian Dollar ($)
© Young Enterprise Trust 2015
3. Mr Smith exchanged his money a week before they left for the trip. The day they left the exchange
rates had changed.
Using the currency sell rates below, calculate how much Mr Smith would have had if he had
exchanged the money the day they left.
New Rate
4.
Exchanged Currency
Pounds (£)
Euros (€)
0.4813
0.6704
Australian Dollars ($)
0.9748
Mrs Smith saw a dress in Paris identical to one she had seen in Auckland. In Auckland the dress cost
$55. In Paris the dress costs 35€.
Compare the cost by converting the NZ price into Euro’s. Is the dress cheaper in Paris? (Calculate
using the exchange rate from the bank you chose in question 1.)
5.
When the Smith family arrive home they realise they still have $200 Australian dollars left. They
exchange it back to NZ dollars, so the bank will now buy the currency from Mr Smith.
If the bank ‘buy’ rate is 1.0093, how many NZ$ will they get?
a.
b.
c.
$198.16
$200.00
$201.86
© Young Enterprise Trust 2015