Foreign Exchange rates

Hi Sir

I’m really very confused and it’s frustrating because I know the lectures are perfectly clear and thorough, but it’s not sticking.

I read this online, whilst doing a bit of further reading.

£/$1.9550 – 1.9759

‘1.9550 is the rate at which we buy the foreign currency at//1.9759 is the rate at which we sell the foreign currency at.’

1. However, based on your lectures, I would have interpreted the above to mean that if the company were buying £s, with $s, that each $1 would be divided by 1.9730 and that if they had £s that the company needed to convert to $ then they could exchange (sell) their £ holdings at £1 divided by 1.9783 – is my understanding correct?

2. I’m going round in circles generally though – because my understanding is so weak. From your lecture, I’ve understood that the output derived from an exchange rate of the form ‘£/$’ means the number of £s required per $ – is that correct? i.e. the exchange rate always relates to the currency on the left hand side of the exchange rate equation and so a number like 1.5 would mean that 1.5 pounds were needed to buy 1 dollar, if the exchange rate we were given were of the form ‘£/$’ – is that correct?

is always the exchange rate under consideration and so the output is always the number of units of that currency needed to buy one unit of the other currency?

Would it be okay to abandon trying to think of the currency as ‘domestic’ vs ‘foreign’ and use the above logic instead?

In your second lecture on foreign exchange rates I totally understand (at least I think I do) the logic up until the Indian Rupees and Ruritanian Dollars example and then I become completely confused – to the point I feel like nothing relating to exchange rate makes sense! I think the source of my confusion stems from the fact that I got used to dealing with what the rules are for what happens when we are buying and selling the currency on the left hand side of the exchange rate equation, so when it’s £/$ I’m always thinking, what are the rules for buying and selling the ‘£’ or whatever is on the LHS of the exchange rate equation.

3. Is it the case, that when we’re dealing with questions involving the RHS of the exchange rate question and we’re asked how much of one unit of the LHS currency we need to buy X number of RHS currency units, that we multiply instead by the higher number of the exchange rate spread if we’re buying the RHS currency, but if we’re selling a defined number of units of the RHS currency (to buy the LHS currency) then we’d multiply by the lower number of the exchange rate spread, because ultimately, in both scenarios, those multiplications would give us the worst outcomes for those entering the foreign exchange market?

Thank you sir – I’m sorry it’s so poorly worded and doesn’t do your teaching justice.