Foreign Exchange Market
The main obstacle to international trade is the fact that each country uses a paper currency which is not usually accepted in other countries. Currencies must be change before purchase can be completed. It is the function of the foreign exchange market to deal with this problem.
The foreign exchange marketis the collective name given to the institutions concerned with buying and selling foreign currency. The foreign exchange market has no set geographical location, because it consists of a large number of banks and foreign exchange dealers in the major financial centers of the world. The centers are linked by the internet, telex, telephone and cable, so that prices in one part of the world can easily be transmitted to the other parts of the world.
Foreign Rates
Exchange rates - the prices at which one country’s currency is bought and sold (exchanged) for another. Exchange rates changes (fluctuate) daily and this change affect the buying power of currency.
- A rise in the value of the dollar results in a fall in the costs of imports, and a rise in the price of exports.
- A fall in the value of the dollar results in a fall in the cost of exports, and a rise in the price of imports.
The Central Bank of The Bahamas is the institution that is responsible for managing the exchange control rate.
Each commercial bank that exchange foreign currency would charge a fee or a commission to do so.
Foreign Exchange Rates Calculations
To change Bahamian dollar to foreign money:
BAHAMIAN CURRENCY x EXCHANGE RATE
Example: Top Shooters import goods from Spain. Spain exchange rate is£1.58 Euros to 1 Bahamian dollar. The imported goods have a value of $200. Convert the $200 Bahamian dollars to £200 Euros.
Answer: 200 x 1.58 = 316 Euros
To change back to Bahamian dollar you divide by the exchange rate.
FOREIGN CURRENCY / EXCHANGE RATE
You must round the answer to two decimal places.
So Dave gets $23.71 back.
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