I have a currency conversion problem that I have found difficult to solve.
Suppose that a currency speculator believes that as time goes on the exchange rate is going to fall. On November 1st the speculator converts $1,000 US into Canadian dollars (just call the converted amount C) and sets that money aside for a period of one month.
On December first, the exchange rate has fallen to 1.2501 and the speculator converts those C Canadian dollars back into US dollars.
How much does she have in US dollars on December 1st? How much money has she made in her speculation? [keep in mind that the conversion rate that is given is for converting from US to Canadian dollars, not from Canadian to US dollars.]
Thank you
To solve this currency conversion problem, you need to know the initial amount in US dollars, the exchange rate, and the conversion process.
Given:
- Initial amount in US dollars: $1,000
- Exchange rate on November 1st: US$1 = C$1.2501
- Exchange rate on December 1st: US$1 = C$1.2501
To find out how much the speculator has in US dollars on December 1st, you need to convert the Canadian dollars (C) back to US dollars using the exchange rate.
First, let's convert the initial amount of $1,000 US dollars into Canadian dollars (C) on November 1st:
C = $1,000 x (1 / 1.2501) = C$799.84
Now, on December 1st, we can convert the Canadian dollars (C$799.84) back to US dollars using the same exchange rate:
US dollars on December 1st = C$799.84 x (1 / 1.2501) = $639.85 (rounded to two decimal places)
Therefore, the speculator would have $639.85 US dollars on December 1st.
To calculate the amount of money the speculator made, we need to subtract the initial amount ($1,000) from the final amount ($639.85):
Money made = $639.85 - $1,000 = -$360.15
So, the speculator has lost $360.15 in her speculation.
Please note that currency rates can fluctuate, and the real-time rates may differ at the time of the actual conversion. This example assumes constant exchange rates for simplicity.