CHAPTER 6 – FINANCIAL SERVICE PROVIDERS FOREIGN CURRENCY EXCHANGE
Foreign currency exchange is a service that allows customers to change their money into another currency. For example, an Irish person going to the USA on holiday will need to change their euro into US dollars. How many dollars they would get for their euro depends on what the exchange rate is that day.
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The exchange rate is the quantity of a foreign currency given in exchange for one euro.
Banks show two prices beside each currency: the ‘we buy’ rate and the ‘we sell’ rate. This is because foreign currency can be bought from a financial institution or sold to it.
Currency exchange is calculated as follows:
To change euro into a foreign currency, multiply the euro amount by the ‘we sell’ rate.
To change a foreign currency into euro, divide the foreign currency by the ‘we buy’ rate.
Example
Jake Quinn is going to Australia on holiday. He wants to exchange €1,000 for Australian dollars. The ‘we sell’ rate on the day he visits the bank is 1.5. This means that Jake will receive 1,500 Australian dollars:
1,000 × 1.5 = $1,500
Jake returns home from his holiday with 200 Australian dollars that he wants to change back to euro. The ‘we buy’ rate on the day he visits the bank is 1.48. This means that Jake will receive:
200 ÷ 1.48 = €135.13 Banks charge a fee for changing currencies. This is called commission. Foreign currency exchange A
Go to page 54 of your Activities and Accounts Book to practise foreign currency exchange.
