The Mathematics of Money

472 Chapter 11 International Business

For other currencies, it is reasonable to simply write the name of the currency after the

amount (e.g., 3,000 Swiss francs), or to look up and use the commonly accepted abbreviation

for the currency (e.g., SFr 3,000). For countries that call their currency the dollar, it is

appropriate to use the “$” sign, using the abbreviation for the country’s name in front of the

symbol if there is any potential for confusion, as we did when we wrote “NZ$” and “US$”

to distinguish between United States and New Zealand dollars.

The “$” sign is also used in many places where the currency is not called a dollar. The

Mexican peso is a common example of this; the dollar sign is commonly used for amounts

in pesos. Just as with other country’s dollars, we will distinguish amounts in pesos by

writing “Mex$” or “M$” when needed for clarity’s sake.

It is a common, and unacceptable, mistake, though, to just use the “$” in front of

any money amount, regardless of the currency, even though many countries do use this

symbol, including many whose currency is not called a “dollar”. Still, in Example 11.1.1

it would be acceptable to write our final answer as “€2,919.33” or “2,919.33 euros”; it is

not acceptable to write this answer as “$2,919.33” unless you know that “$” is the proper

symbol for the currency. When you don’t know the proper symbol, it is also reasonable to

use the first letter of the currency name in front of the currency amount (e.g., “R5,000” for

5,000 Russian rubles), even though this may not be the official abbreviation.

Before moving on, we should mention something about the calculation done in

Example 11.1.1. We could have gotten the answer more quickly by simply multiplying

(3,724.59)(0.7838), without bothering to set up equations and multiply both sides. This

is a perfectly reasonable way of doing the conversion. If you need to make conversions

often, you will undoubtedly want to take this shortcut instead of writing out the equations.

However, writing out the equations helps avoid the risk of accidentally using the rate from

the wrong column (using 1.2758 instead of 0.7838), and is the safer path to take unless

you are comfortable enough with currency conversion to be confident that you are always

selecting the correct rate. If you prefer to take this shortcut, you will want to try it out with

the homework exercises. If you find that you can consistently obtain correct answers by

using the shortcut, it is reasonable to use it. If, however, you find that you sometimes make

errors trying to take this shortcut, it is best to work things out with the equations.

Converting from a Foreign Currency to US$

Converting from a foreign currency into US$ works the same way, except that the more

useful column is the “US$ Equivalent” in Table 11.1.

Example 11.1.2 Convert 348 Turkish new lira into US$, using the Thursday rate.

From the table we have

L1 
 US$0.6692

Multiplying both sides of the equation by 348,000 we get

L348 
 US$232.88

As noted in the previous section, we could also have gotten this result simply by taking

(348)(0.6692) to get 232.88. The same cautions apply. In this case, using the wrong rate would

lead to the incorrect conclusion that the value is $520.02, quite far from the correct value.

Rounding Foreign Currencies

Like the U.S. currency, most foreign currencies have a main unit (comparable to the dollar)

that can be divided into hundredths (comparable to cents). A British pound is equal to

100 pence, a Chinese yuan is equal to 100 fen,^1 and a Russian ruble equals 100 kopeks. So,

like money in U.S. dollars, amounts of money in foreign currencies can usually be rounded

to two decimal places.

(^1) In practice, the value of 1/100 of a yuan is small enough that it is seldom actually used in practice. 1/10 of a yuan
is called a jiao, and this is the more commonly used subunit.