Exchange Rates

A common 2- or 3-mark exam task involves two operations.

Converting from one currency to another

Multiply (or divide) the amount by the exchange rate, depending on the direction of the conversion.

To convert a domestic price into a foreign currency, multiply by the number of units of foreign currency per unit of domestic currency. To convert a foreign price back, divide by the same rate.

Calculating the percentage change in an exchange rate

Percentage change = ((new rate − old rate) ÷ old rate) × 100.

A positive result is an appreciation; a negative result is a depreciation. For example, if the rate moves from £1 = $2.00 to £1 = $1.60, the change is ((1.60 − 2.00) ÷ 2.00) × 100 = −20%, a 20% depreciation that makes a £400 export fall from $800 to $640 for an overseas buyer.