Different countries throughout the world have their own currency.
When travelling overseas, you will be purchasing products and services in the currency of that country.
For example, if you are travelling to France and wish to take cash, you will want to exchange some AUD for some EUR. You can do this at a bank or at a Foreign Exchange outlet - either here in Australia or at your destination.
If instead you are going to mainly use a credit card, then your bank will convert AUD to EUR and charge a transaction fee for doing so. This is also a common occurrence when purchasing goods online from international vendors.
When exchanging one currency for another, it is very rarely a one-to-one swap. Instead, there is a relationship between the two currencies which can be expressed as a rate.
In early 2016, $1$1 AUD was worth $0.68$0.68 EUR. So for one dollar Australian coin you would receive $0.68$0.68 euros in return. If we wanted to, we could write this as the rate $0.68$0.68 EUR/AUD, although this is not common practice.
These rates change daily as the circumstance of each economy fluctuate and influence each other. These changes are often very unpredictable.
Some implications of the change in the value of a currency are as follows:
When exchanging your country's currency for the currency of another country, you are considered to be buying that currency.
As with any other purchases, the price of that currency will be different depending on where you purchase. Let's look at an example.
This first image shows the official exchange rate for exchanging $1$1 AUD for Euros at a point in time.
This next table shows how many Euros the ANZ bank would buy and sell for every $1$1 AUD on the same day.
Bank buys | Bank Sells | |||||||
---|---|---|---|---|---|---|---|---|
Country | Currency | Currency code | IMT/TT | Travel card/Chq | Notes | IMT/TT | Travel Card/Chq | Notes |
USA | Dollars | USD | $0.7127$0.7127 | $0.7166$0.7166 | $0.7216$0.7216 | $0.6540$0.6540 | $0.6540$0.6540 | $0.6540$0.6540 |
EURO MONETARY UNION | Euro | EUR | $0.6559$0.6559 | $0.6664$0.6664 | $0.6786$0.6786 | $0.5966$0.5966 | $0.5966$0.5966 | $0.5966$0.5966 |
And finally, this image shows how many euros a Foreign Exchange centre would give for every $1$1 AUD, again on the same day.
As we can see, when buying another currency you'll typically receive less than the official rate. These various outlets make money on the sale.
If we had $\$500$$500 AUD, how many euros could we buy at ANZ?
Think: Looking at the above rate at ANZ, we can see that $1$1 AUD is exchanged for $0.5966$0.5966 EUR. Since we have $500$500 AUD, we need to multiply $500$500 by $0.5966$0.5966.
Do:
$1$1 AUD | $=$= | $0.5966$0.5966 EUR |
Write the exchange rate as an equation. |
$500\times1$500×1 AUD | $=$= | $500\times0.5966$500×0.5966 |
Multiply both sides by $500$500 to keep balanced. |
$500$500 AUD | $=$= | $298.30$298.30 EUR |
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Realistically, a bank won't hold coins in other currencies, so we'd have to spend a little more AUD to get $300$300 EUR.
If we just bought $600$600 EUR from ANZ bank, how many AUD's did we spend?
Think: Using the same rate as in the first example, we will this time need to divide $600$600 by $0.5966$0.5966.
Do: $\frac{600}{0.5966}=1005.70$6000.5966=1005.70 AUD
This can also be calculated using a balanced equation to follow the process and be clear when to divide and when to multiply.
$0.5966$0.5966 EUR | $=$= | $1$1 AUD |
Divide both sides by $0.5966$0.5966 to find the cost of $1$1 Euro. |
$1$1 EUR | $=$= | $\frac{1}{0.5966}$10.5966 AUD |
This is approximately $1.68$1.68 AUD but don't round until the final answer. |
$600$600 EUR | $=$= | $\frac{600}{0.5966}$6000.5966 AUD |
Multiply both sides by $600$600 to find the cost of $600$600 Euro. |
$600$600 EUR | $=$= | $1005.70$1005.70 AUD |
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When exchanging another currency for the currency of your own country, you are selling instead of buying.
Let's say you've come back from a wonderful holiday in France and you have $50$50 EUR left over in cash. You can't spend euros in Australia, so you return to the ANZ bank to exchange it back to AUD.
Think: If we use the same ANZ table given above (although realistically the rates would likely have changed), we can see that the bank buys $0.6786$0.6786 EUR and gives $1$1 AUD in return. In other words, for every $0.6786$0.6786 EUR we have, we'll get $1$1 AUD.
We'll divide our $50$50 EUR by $0.6786$0.6786 to see how many AUD we'll get.
Do: $\frac{50}{0.6786}=\$73.68$500.6786=$73.68 AUD. Or we can calculate this set out as follows:
$0.6786$0.6786 EUR | $=$= | $1$1 AUD |
Divide both sides by $0.6786$0.6786 to find how many Australian dollars $1$1 Euro will buy. |
$1$1 EUR | $=$= | $\frac{1}{0.6786}$10.6786AUD |
This is approximately $1.47$1.47 AUD but don't round until the final answer. |
$50$50 EUR | $=$= | $\frac{50}{0.6786}$500.6786 |
Multiply both sides by $50$50 to find how much $50$50 Euro ca purchase. |
$50$50 EUR | $=$= | $73.68$73.68 AUD |
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When travelling overseas or purchasing items online, be aware of exchange rates and fees your bank may charge so you don't accidentally overspend your budget or pay too much for an item.
In the table below, the first column shows how much foreign currency you need to buy $1$1 AUD (Australian Dollar), while the second column shows how much foreign currency you will obtain when you sell $1$1 AUD.
Brad is going on a holiday to France, and wants to change his $9800$9800 AUD into euros for spending money.
Currency | Buy | Sell |
---|---|---|
Fijian Dollar | $2.0749$2.0749 | $1.7737$1.7737 |
Yen | $99.4445$99.4445 | $85.7473$85.7473 |
Rupee | $68.1793$68.1793 | $50.7655$50.7655 |
Euro | $0.8327$0.8327 | $0.7399$0.7399 |
Canadian Dollar | $1.0443$1.0443 | $0.9235$0.9235 |
Hong Kong Dollar | $8.8568$8.8568 | $7.4328$7.4328 |
How many euros will he receive for his $9800$9800 AUD?
Give your answer correct to two decimal places.
If $190$190 AUD is worth $358.37$358.37 FJD, how much is $380$380 FJD worth?
Give your answer correct to two decimal places.