Currency
The Euro is the common currency of the member states of the European Union, and was introduced to Finland in 2002. Other important currencies include the US dollar the British pound and the Japanese yen. We convert currencies into other currencies using exchange rates.
When using exchange rates, an exchange transaction is always viewed in terms of what the bank (or other company specialising in currency exchange) does to the currency. Currency exchange always sells or buys foreign currency, not euros!
The buying rate is the rate at which the bank buys the currency. Tourists come to exchange currency, for example, dollars to euros.
The selling rate is the rate at which the bank sells currency. Now the traveller is going away on a trip and wants to exchange euros for dollars.
As a general rule:
the euro is converted into another currency by multiplying the euro amount by the exchange rate (selling rate)
the amount expressed in another currency is converted into euros by dividing by the exchange rate (purchase rate)
Use the following exchange rates for the following tasks.
Example 1. A tourist wants to exchange 350 euros for British pounds. How many pounds does a tourist receive?
The bank sells pounds to the tourist, so the selling rate is used.
The tourist receives £294.70
Example 2. A tourist returns from a holiday trip to Denmark. He has 125 krones left in his wallet, which he wants to exchange for euros. How many euros does a tourist receive?
The bank buys the tourist krones, so the purchase rate is used.
Exchange rates are not fixed, so the value of the euro against other currencies changes daily. The value of a currency may fall or rise relative to other currencies. In this case, we are talking about strengthening the currency (revaluation) or weakening the currency (devaluation).
If the euro strengthens, you will receive more foreign currency with one euro.
If the euro weakens, you will receive less foreign currency with one euro.
Example 3. In June 2017, the dollar exchange rate against the euro was 1,0871. In June 2018, the corresponding rate was 1,1245.
a) Did the euro weaken or strengthen against the US dollar?
b) How much has the US dollar devalued over the same period?
Solution.
a) The amount of the strengthening or weakening of a currency is expressed as a percentage. So let's compare the ratio of courses. Remember that the original / previous value is the one being compared.
The exchange rate has increased and the euro has revalued 3,4%.
b) The dollar values must first be converted into euros.
June 2017:
So
June 2018:
As the dollar has weakened against the euro, the dollar has devalued.
The devaluation percentage
The dollar has devalued 3,3%.
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Exercises
1. Convert €2150 into rubles.
2. Convert £376,50 into euros.
3. A tourist had £400 left from a holiday trip which he wanted to convert back into euros. How many euros does the tourist receive?
4. A tourist returns from Mauritius with 12 450 rupees. The purchase price of the rupee is 41,2875 and the selling price is 35,4319. He wants to exchange rupees for euros. The currency exchange point charges a delivery fee of €2,50 for the currency exchange. How many euros does the tourist receive?
5. A tourist bought 10 000 Russian rubles. How many euros are needed for the currency exchange?
6. The exchange rate of the Japanese yen was 105,81 in June and 132,11 in December. By what percentage had the euro revalued against the Japanese yen?
7. A tourist bought 1050 NOK in traveller's checks. The bank charged an exchange fee of €5,00 and 1,5% of the value of the travellers' checks. How many euros did the tourist have to pay the bank?
8. The exchange rate for the Turkish lira is 0,1663 €. What was the exchange rate of the euro in lira?
9. Which of the following options is correct when the euro devalues?
A) a tourist receives more foreign currency for the same amount of euros than before
B) products in the destination country are more expensive
C) products in the destination country are cheaper
D) the price of imported products are lower
10. Which of the following options is correct when the euro revalues?
A) a tourist receives less foreign currency for the same amount of euros than before
B) products purchased as souvenirs in the destination country are more expensive
C) souvenir prices are lower
D) the price of domestic products are cheaper for foreigners