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How Currency Exchange Works


When you are abroad, it’s important to know how much the country’s currency is worth in relation to United States dollars (USD). The worth of a currency in dollars is called the exchange rate. Sometimes the exchange rate is based on the value of 100 USD, and other times it’s based on the value of 1 USD. To find the value of the currency in US dollars you’ll need some formulas. Here are two such formulas.

Formula

Exchange Rate Based on 100 Units of Foreign Currency

Currency Exchange Rate 100 = USD

Example 1

You’re going on a skiing trip to Canada and brought 342 CAD (Canadian dollars) with you. The exchange rate is 79 USD = 100 CAD. How many American dollars have you brought?

342 79USD 100 = $270

Coins and bills of different currencies

Formula

Exchange Rate Based on 1 Unit of Foreign Currency

Currency Exchange Rate = USD

Example 2

You’re going on a weekend trip to London, and have brought 500 GBP (pounds sterling, or Great Britain pounds) with you. You wonder how many US dollars that is when the exchange rate is 1GBP = 1.40USD.

500 1.40USD = 700USD

You have brought $700 to London.

But what if you want to know how much the American dollars in your pocket are worth in a foreign currency? The formulas above can also be seen as equations. If you want to exchange the other way around, you put the known values into the equation and solve for the variable you’re looking for. See the example below.

Example 3

Iron Man and Pepper Potts are going on vacation to Norway. They’re bringing some cash and wish to exchange it for Norwegian kroner (NOK). How many NOK do they get if they exchange $174, when the exchange rate is 1NOK = 0.12USD? 0.12 x = 174| : 0.12 0.12 x 0.12 = 174 0.12 x 1450

Iron Man and Pepper will get 1450 NOK when they exchange their money.

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