Copyright © 2008, The McGraw-Hill Companies, Inc.
countries (Ecuador, for example) have even gone so far as to give up on having a currency
of their own, and have made the U.S. dollar official for the country.
Most countries, though, either have currencies of their own or participate with others
in a shared currency (such as the euro used by many European countries), and business
conducted in or with those countries ordinarily will involve that nation’s currency. Further-
more, the U.S. dollar is hardly the only major currency in use in the world. That Brazilian
farmer and Korean food company might make their deal in Japanese yen or European euros
just as well as in U.S. dollars.
There are many interesting aspects to international trade and the world’s many currencies,
but our focus in this text is the mathematical challenges that they pose. The most important
mathematical challenge for us to look at is converting money from one currency to another.
Suppose that you are an American vacationing in New Zealand. Even though New
Zealand’s currency still goes by the same name (dollar) and is still represented with the
same “$” sign, New Zealand dollars are not the same as U.S. dollars. Though it may be pos-
sible to pay with U.S. dollars in some places (especially those who see a lot of American
tourists or business travelers), New Zealand businesses will generally expect you to pay
with New Zealand dollars. But are New Zealand dollars worth more, or less, than U.S.
dollars? How much more or less? To be able to intelligently conduct any sort of business
there, you will need to be able to convert between the two currencies.
To convert between currencies, you first must know the exchange rate. An exchange
rate is a statement of the value of one currency in terms of another. Exchange rates can vary
over time, but tables of current exchange rates are published daily in the Wall Street Journal,
Financial Times, USA Today, and in the business sections of many newspapers. Current
rates can also be obtained from many banks, currency brokers, and online sources.
The table shown in Table 11.1 is typical:11.1 Currency Conversion 469TABLE 11.1
Exchange Rates as of
4 P.M. August 24, 2006US$ EQUIVALENT CURRENCY PER US$
Country Currency Thursday Wednesday Thursday WednesdayArgentina Peso 0.324 0.324 3.0864 3.0864
Australia Dollar 0.761 0.7628 1.3141 1.311
Bahrain Dinar 2.6526 2.6526 0.377 0.377
Brazil Real 0.4652 0.4649 2.1496 2.151
Canada Dollar 0.9003 0.8986 1.1107 1.1128
1 month forward 0.9012 0.8994 1.1096 1.1119
3 months forward 0.9029 0.901 1.1075 1.1099
6 months forward 0.9055 0.9037 1.1044 1.1066
Chile Peso 0.001869 0.00187 535.05 534.76
China Renminbi* 0.1254 0.1254 7.9719 7.9719
Colombia Peso 0.0004152 0.00042 2408.48 2380.95
Czech Rep. Koruna 0.04524 0.04549 22.104 21.983
Denmark Krone 0.171 0.1715 5.848 5.8309
Ecuador U.S. dollar 1.0000 1.0000 1.0000 1.0000
Egypt Pound 0.1741 0.1741 5.7432 5.7438
Hong Kong Dollar 0.1286 0.1286 7.7766 7.7774
Hungary Forint 0.00457 0.004607 218.82 217.06
India Rupee 0.02154 0.02152 46.425 46.468
Indonesia Rupiah 0.0001094 0.0001099 9141 9099
Israel Shekel 0.2282 0.2288 4.3821 4.3706
Japan Yen 0.008582 0.008594 116.52 116.36
1 month forward 0.008619 0.008631 116.02 115.86
3 months forward 0.008691 0.008706 115.06 114.86
6 months forward 0.008799 0.008813 113.65 113.47
(Continued)