The Mathematics of Money

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Learning Objectives

LO 1 Convert money amounts between U.S. and foreign

currencies.

LO 2 Convert money amounts between two different

foreign currencies.

LO 3 Calculate foreign exchange amounts using both

published and retail exchange rates.

LO 4 Distinguish between spot and forward exchange rates.

Chapter Outline

11.1 Currency Conversion

International

Business

11.1 Currency Conversion

It’s a well-worn cliché to say that the world is getting smaller and business is becom-

ing more global all the time, but this became a cliché honorably: it’s true. Businesses

manufacture, buy, and sell their products and services around the globe. There are plenty

of products at your local shopping mall made in all sorts of exotic locations, and in fact you

might be hard pressed to find any products that aren’t made in all sorts of exotic locations.

Someone residing in Chicago or Philadelphia can vacation in Italy almost as easily as in

California. And the growth in the Internet and electronic commerce can bring international

trade down to the individual consumer’s level. Someone who has never personally been

outside the United States can nonetheless easily buy a book from a shop in London, Toronto,

or Singapore and have it delivered to her door just as easily as visiting a local bookstore.

Just as much of the world’s business is conducted in English, much of the world’s

business in conducted in U.S. dollars. Business deals made outside the United States that

do not involve any American individuals or companies can still be made in American

dollars. There is little to prevent a Brazilian farmer from selling soybeans to a Korean

food processor for a price in U.S. dollars, if that is the currency the two agree to use. Some

“There is nothing quite wonderful as money,

There is nothing like a newly minted pound,

Everyone must hanker for the butchness of

a banker,

It’s accountancy that makes the world go

round.

You can keep your Marxist ways

For it’s only just a phase.

For it’s money money money makes the

world go round!”

—Monty Python, “The Money Song”

CHAPTER

11