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    • I am not going to type out here the ‘rule’ that I explain in the lectures (although I do suggest that you watch the lecture again), but think about it logically.

      We are not buying Indian Rupees. We are in India and need to pay money in R$. Therefore it is R$ that we are buying. If we were able to buy them at 8.6380 then we would end up paying less. That cannot be the case – the reason for having two rates is so that the bank can make a profit! We have to buy the R$ at the higher rate which is 9.2530.

  3. It may be presumptuous of me to give advice here ( since I read the chapter today), but I had trouble getting these as well.
    Might help somebody else to figure out when to multiply when to divide

    I use a small equation. Let’s use example 2
    IR/$R = 9.253/1 = this is the part that is given. Your unknown is indian rupee, so you put an x in the numerator (IR is on the top) so we get 9.253/1=x/240000
    Solve for x.
    I still get the bid/ask wrong, but I think I will do both to see which one is higher( we pay the higher)

    That is basically what the Professor was describing but making a small equation helped me to see them more clearly.

    • How you choose to remember it is obviously up to you, and whichever way ‘works’ for you.
      With regard to deciding which of the two rates to use, by all means try both as you have written. However appreciate that you are always going to be desperately short of time in the exam, and so it would be worth learning the rule so as not to spend too much time on what will probably be just a 2 mark MCQ.

      • Thank you for the lectures!!! Makes a big difference to see you working through a problem.

        The bid/ask thing …. I hear you, it should be easy. The thing is … you already have one in your calculator. It takes no more than 10 seconds to double check. I know, I know it’s not the right way to “learn”.

        I know you hear it often, but thank you again.

  4. Dear sir,

    The exchange rate you mentioned is $/£ 1.6250 – 1.6310.
    The BUY rate is lower than the SELL rate.

    But when I checked the website
    I found that the website is mentioning the BUY rate to be higher than the SELL rate.

    i.e.,: Converting USD to GBP:
    Selling 1.0000 USD => you get 0.7932 GBP
    Buying 1.0000 USD => you pay 0.7934 GBP

    Please comment that why the currency converter site is quoting in reverse order. Thanks,

    • Because the quote you mention is quoting GBP per $
      The example in the lecture is quoting $ per GBP.

      The rule is exactly the same – if you are buying the first quoted currency then it is the lower rate. In your example from some website, you are selling USD and therefore buying GBP and therefore we use the lower rate.

      Nobody is doing anything in reverse order and everything in the lecture is 100% correct 🙂

      • Thank you sir for your explanation.

        I again checked oandaDOTcom => Converter:

        What I get for GBP/USD (selecting I have GBP and I want USD):
        Selling 1.00000 GBP you get 1.26037 USD
        Buying 1.00000 GBP you pay 1.26060 USD

        Again here the buy rate is more than the sell rate.

        I just want to be clear on this, so that I can practice it in my job.

        Thanks,

      • I can do no more than repeat what I wrote before. The lectures explain in detail how to deal with it and the logic involved, and it depends which way round the quote is given ($’s per GBP or GBP’s per $), which is also explained in the lectures.
        You cannot simply learn rules blindly – either for the exam or in real life. If you understand what is happening then it should be clear which rate to use in each case.

  6. Hi John,

    I have a new way of knowing the division and multiplication. If the figure you are about to change is in the first currency then you will be dividing but if that figure is quoted in the second currency then you will be multiplying. I think that’s right?

  7. Dear John,

    I have another approach:
    euro/yan 0.8010-0.9230

    we than could convert the exchange rate as we are in the euro zone:

    1/0.8010=1.2484
    1/0.230=1.0834

    we could get
    yan/euro 1.0834-1.2484

    we receive yan so we sell yan for euros

    1,000,000/1.2484= 801,025 euros

    what do you think about my approach?

    many thanks!

    regards,

  11. Dear sir,
    i am soo lost i need a GPS!!!! initilally i was flowing and understanding but i got stuck when you had to multiply the exchange rate instead of dividing .As for the concept of which exchange rate to use is clear .kindly help please.
    thank you.

    • If, for example, there is a $/GBP exchange rate of 1.50, then it means that 1 GBP is equal to $1.50.
      So if you are converting GBP to $ then you need to multiply by 1.50.
      (1 GBP = $1.50; so 2 GBP must equal $3; 3 GBP must equal $4.50, and so on).

      However, if you are converting from $ to GBP then you need to divide by 1.50.
      ($1.50 = 1 GBP; so $3 must equal 2 GBP; $4.50 must equal 3 GBP and so on)

  14. Hi Sir John Moffat,

    I have listened to the lectures a few times for the foreign exchange aspect of the syllabus. However, i still never get the correct rates. Please how can you assist. I really need the advice because if the rate chosen is incorrect the entire question is incorrect.

    Regards
    Shamela John

    • I cannot really give any other rules than the ones that I give in the lecture (I assume that you have the Course Notes in front of you while watching the lecture?).
      Just remember that it is always the rate that is worst for us – i.e. if we are receiving money then the rate that gives the lowest receipt, and if we are paying money then the rate that gives the greatest payment.

  16. Hello sir, I’m having one confusion. If I look at example 1. Two exchange rates are given
    $/£ 1.6250-1.6310
    In your lecture you are telling us that if the company is buying the first currency then it’s the first rate and vice versa.
    What I just can’t comprehend is that if the company is buying at a lower rate from bank which is 1.6250 then the company can make it a business by selling it at 1.6310. Over and over again. I’m sure I misunderstood something.
    I would be grateful to you if you can help me on this

  17. To Moffat and Hamzaharoon, thank you guys so much for explaining this. I think I totally understand it now. I was looking at it from the bank’s point, but was still getting confused, now I think I have gotten it.

    • It is hard for me to say any different then I say in the lecture.

      I assume that you realise that the reason that there are always two rates given is because the banks want to make a profit! Because of that we always use whichever of the two rates is worse for us – if we are paying money then it is whichever rates mean we pay most, if we are receiving money than it is whichever rate means we receive less.

      What I suggest you do is try one or two of the examples in the Course Notes. Try using both rates and decide which of the two rates must the correct one (whichever ends up being the worst for us).

      Once you have convinced yourself, then you need a rule for it (because in the exam you don’t want to waste time trying both rates). I explain in the lecture the rule that I use. However, it doesn’t matter what rule you use – whatever is easiest for you to remember. But if you convince yourself with a few examples which rate is the most sensible, then you should find it easier to either remember my rule, or to create a different rule that is suitable for you.

      • I think I have figured it out… I just need to look at it from the banks point of view. I have also done an acrostic to remember when to times and when to divide. I will do some more practice questions which I haven’t come across before and make sure I definitely have got the hang of it. Fingers crossed. Thank you John your a star! ????

    • @charlottecallaghanclarke A Trick for you:

      The exchange rate spread ( $ to Pound)
      1.6250 – 1.6310
      Buying – Selling
      Paying – Receiving

      As you can see, when you are RECEIVING money from a customer in foreign currency, you will need to SELL the foreign money you have received to the Bank, in order to get your home currency, Pounds. (Why? Because this is the currency you use in your home F/S.) But what rate will you use when SELLING? As a rule, you will only use the rate which is profitable to the Bank, i.e. the Higher rate, as shown above.

      Similarly, if you are PAYING money to a foreign supplier in the supplier’s currency, you will need to BUY the supplier’s currency from the Bank. What rate are you going to use when buying? You will use the rate which is profitable to the Bank. i.e. the LOWER rate.

      Imagine you are BUYING a cellphone quoted at $ 500 – 600 from a Supplier, and I told you that the ‘rule’ is that you will PAY the price that is profitable to the Supplier. Then you will obviously PAY $ 600. i.e. profitable to the supplier, not you.

      So in short, for easy recall, just remember,
      Lowest rate – Highest rate
      1.6250 – 1.6310
      B – S
      P – R

      BS and PR… or for easy memory, Balance Sheet and Public Relations.

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