Monday, July 20, 2009

HOW TO CALCULATE EXCHANGE RATE

My previous article I did mentione the history of foreign exchange. Today I have time to tech you how to calculate exchange rate. Lets see now.

1. Now let me give you some foreign exchange rates.
Below is a sample of exchange rates taken on July 20th, 2009 from Reuters screen around 8.45 A.M. The value shows 1 American Dollar equals in other national currencies.
CCY
VALUE
MYR
3.5600
AUD
1.2414
CNY
6.8310
EUR
0.7075
JPY
94.4500
GBP
0.6110

2. Step 1
This is a picture of 1000 Japanese Yen.
Let's take the Japanese Yen for example. 1 American Dollar equals 94.45 Yen. That means that 1 USD can buy 94.45Y worth of Japanese goods.

3. Step 2

Now, let's learn to calculate. First, we know that 94.45Y equals $1.00, but what would be the U.S. dollar-Yen exchange rate?. 94.45 is not right! You have to divide 1.00 into 94.45 which equals 0.01058 cents per 1 Yen. That is not even 1 penny's worth per Yen in Japan.

4. Step 3
May be you still blur on rate conversion. Let’s have an example. You purchase a Sony TV in Japan which cost you Yen 30,000. So how much you need to pay the same model in USA?

5. Step 4
Let's calculate. Remember that 0.01058 cents equals 1 Yen. So, we just take 0.01058 multiplied by 30,000 Y which equal $317.40 U.S. dollars. This conversion goes for ALL exchange rates whether it is Euros, Pounds, Francs, etc.
From the conversion above you may decide which country that give you the best price of same product model.

We always go for cheaper goods of same quality.

Another simple example, Malaysia would like to visit a country where the value of currency is cheaper than Malaysia Ringgit. More and more Malaysian visited neighbouring country such as Indonesia, Thailand and Philippine.
Over there we can get same product and quality with cheaper price.

Tips & Warnings
REMEMBER: Exchange Rates always change and not static.
Exchange rates move according to fundamental and technical reasons.
When buying something overseas, remember to keep an eye on the exchange rates for that day.
If you buy something today with the rates up always remember it may be cheaper tomorrow!!
Resources
· Reuters

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