Currency and Exchange Rate

Suppose your school takes your class on an educational tour to Thailand. You carry a wallet full of Nepali rupees, walk into a shop in Bangkok and pick up a snack. The shopkeeper shakes his head. In Thailand people pay in Thai baht, and a Nepali rupee note is of no use to him. A businessman who imports goods faces the same problem. If he buys machines from China, the seller there expects to be paid in a currency he accepts, not in Nepali rupees.

Money also travels in the other direction. Thousands of Nepalis work in Qatar, Malaysia, South Korea and many other countries, and they are paid in the money of the country they work in. When they send money home, their families do not receive riyals or ringgits, because those cannot be spent in the local market. The family receives Nepali rupees. How many rupees it gets depends on what one unit of that foreign money is worth in rupees on the day the money is changed.

Since every country has its own currency, there has to be an agreed answer to one question: how much is one currency worth in another? Without it, the student going abroad, the trader paying for imports and the worker sending money home would have no fair way to change their money.

For example, if on a certain day 1 US dollar = Rs. 127.35, then changing one dollar gives 127 rupees and 35 paisa. In the same way, changing 10 dollars gives Rs. \( 127.35 \times 10 = 1273.50 \).

The exchange rate between the currency of one country and that of another is decided by the government or the central bank of the country. Nepal's central bank is Nepal Rastra Bank, and its central office is at Thapathali, Kathmandu. Nepal Rastra Bank declares the exchange rates of many foreign currencies, and banks and other financial institutions across the country change money on the basis of those rates.

The rate between the Nepali rupee and the Indian rupee is fixed. It does not move from day to day: 100 Indian rupees are worth about 160 Nepali rupees. The rates with other currencies, such as the US dollar, the euro, the pound and the yen, are not stable. They rise and fall from one day to the next. That is why an exchange rate is always given together with the date it applies to.

A bank deals in foreign currency in both directions. Sometimes it buys foreign currency from a customer, and sometimes it sells foreign currency to a customer. It uses a different rate for each.

The selling rate is always a little higher than the buying rate. Take the British pound sterling: the bank buys one pound for Rs. 150.94 and sells one pound for Rs. 151.65. On every pound the bank keeps a margin of Rs. \( 151.65 - 150.94 = 0.71 \). That margin pays for the bank's service of changing money and gives it a profit. If a bank sold currency for less than it paid, it would lose money on every exchange.

Below are the exchange rates declared by Nepal Rastra Bank, Central Office, Thapathali, on Bhadra 5, 2079 (21 August 2022). The calculations in this topic use these rates.

The table has five columns. The first two name the country and its currency. The third, the unit, says how many units of the foreign currency the rate is given for. The fourth shows what the bank pays when it buys that amount, and the fifth shows what the bank charges when it sells it. The Canadian dollar row, for instance, says that the bank pays Rs. 98.08 for one Canadian dollar and charges Rs. 98.54 for one.

Most currencies are quoted for 1 unit. A few are quoted in groups, because one unit on its own is worth very little: the Japanese yen for 10 units, and the South Korean won and the Indian rupee for 100 units.

Before calculating, ask one question: is the foreign currency going into the bank, or coming out of it?

• Foreign currency goes into the bank, the bank buys it, so the buying rate is used: a family collects money (a remittance) sent by a relative working abroad.
• Buying rate: a tourist visiting Nepal changes dollars or euros into rupees.
• Foreign currency comes out of the bank, the bank sells it, so the selling rate is used: a student going abroad to study pays rupees to get the currency of that country.
• Selling rate: a trader who imports goods buys foreign currency from the bank to pay the bill.

Question: Using the exchange rates in the table, find the difference between the buying price and the selling price of 500 pounds sterling (GBP).

Step 1: Writing the buying rate of one pound:

\[ \text{GBP } 1 = \text{Rs. } 150.94 \]

Step 2: Multiplying by 500 to get the buying price of 500 pounds:

\[ \text{Rs. } 150.94 \times 500 = \text{Rs. } 75{,}470 \]

Step 3: Writing the selling rate of one pound:

\[ \text{GBP } 1 = \text{Rs. } 151.65 \]

Step 4: Multiplying by 500 to get the selling price of 500 pounds:

\[ \text{Rs. } 151.65 \times 500 = \text{Rs. } 75{,}825 \]

Step 5: Subtracting the buying price from the selling price:

\[ \text{Rs. } 75{,}825 - \text{Rs. } 75{,}470 = \text{Rs. } 355 \]

So the difference is Rs. 355. A quick check: the difference on one pound is Rs. 0.71, so on 500 pounds it is Rs. \( 0.71 \times 500 = 355 \). Both ways give the same answer.

Question: On a certain day, the exchange rate is 1 US dollar (USD) = Rs. 126.35.

• (a) How many US dollars can be exchanged for Rs. 85,500?
• (b) How many rupees can be exchanged for USD 3,000?

Part (a): Here rupees are changed into dollars, so first we find what one rupee is worth in dollars.

Step 1: Writing the given rate:

\[ \text{USD } 1 = \text{Rs. } 126.35 \]

Step 2: Dividing both sides by 126.35 to find the value of one rupee:

\[ \text{Rs. } 1 = \text{USD } \frac{1}{126.35} \]

Step 3: Multiplying both sides by 85,500:

\[ \text{Rs. } 85{,}500 = \text{USD } \frac{85{,}500}{126.35} \]

Step 4: Dividing, and rounding to two decimal places:

\[ \text{Rs. } 85{,}500 = \text{USD } 676.69 \]

So Rs. 85,500 can be exchanged for about USD 676.69. When rupees are changed into a foreign currency, we divide by the rate.

Part (b): Here dollars are changed into rupees.

Step 1: Writing the given rate:

\[ \text{USD } 1 = \text{Rs. } 126.35 \]

Step 2: Multiplying both sides by 3,000:

\[ \text{USD } 3{,}000 = \text{Rs. } 126.35 \times 3{,}000 \]

Step 3: Working out the multiplication:

\[ \text{USD } 3{,}000 = \text{Rs. } 3{,}79{,}050 \]

So USD 3,000 can be exchanged for Rs. 3,79,050. When a foreign currency is changed into rupees, we multiply by the rate.

In each of these, first decide which rate applies, then multiply or divide. All the rates come from the table of Bhadra 5, 2079.

Remittance: A brother working in Qatar sends home 1,500 Qatari riyals (QAR). How many rupees does the family receive?

Step 1: The bank takes in the riyals, so it is buying them. Writing the buying rate:

\[ \text{QAR } 1 = \text{Rs. } 34.82 \]

Step 2: Multiplying by 1,500:

\[ \text{Rs. } 34.82 \times 1{,}500 = \text{Rs. } 52{,}230 \]

The family receives Rs. 52,230.

Studying abroad: Sunita is going to Australia to study and needs 2,000 Australian dollars (AUD) for her first month. How many rupees must she pay?

Step 1: The bank hands out Australian dollars, so it is selling them. Writing the selling rate:

\[ \text{AUD } 1 = \text{Rs. } 88.23 \]

Step 2: Multiplying by 2,000:

\[ \text{Rs. } 88.23 \times 2{,}000 = \text{Rs. } 1{,}76{,}460 \]

Sunita must pay Rs. 1,76,460.

Tourist: A tourist from Japan changes 5,000 Japanese yen (JPY) into rupees. How many rupees does the tourist get?

Step 1: The bank is buying yen, and the rate is given for 10 yen:

\[ \text{JPY } 10 = \text{Rs. } 9.32 \]

Step 2: Finding how many groups of 10 yen there are in 5,000 yen:

\[ 5{,}000 \div 10 = 500 \]

Step 3: Multiplying the number of groups by the value of one group:

\[ \text{Rs. } 9.32 \times 500 = \text{Rs. } 4{,}660 \]

The tourist gets Rs. 4,660.

• Read the unit column: is the rate for 1, 10 or 100 units?
• Choose the rate: foreign currency into the bank means the buying rate, and foreign currency out of the bank means the selling rate.
• To change a foreign currency into rupees, multiply the foreign amount by the rate.
• To change rupees into a foreign currency, divide the rupee amount by the rate.
• Write the currency with your answer, and check that the size of the answer makes sense.