Making sense of currencies

Feel like shopping online? Watch out for exchange rates. Use this activity sheet to practice converting exchange rates.

Description

Online shopping has become pretty popular, but watch out—there are a number of things to consider when you shop this way. Nowadays, you can buy products from around the world in just a couple of clicks, so it’s important to check the currency and exchange rate. But what’s an exchange rate?

Ages

12 to 16 years old

Subject areas

Economy

• consideration of exchange rates when making a purchase
• discover the reasons behind consumer habits

Financial literacy

• identify methods and tools to maintain a balanced budget
• track and adjust a budget to meet long term financial goals
• informed decision-making on purchases

Math

• calculate foreign exchange rates
• real-world use of fractions, decimals, and percentages

Business and careers

• understand how currency fluctuations can impact businesses

Learning objectives

Students will learn to:

• calculate various exchange rates
• plan their spending according to their budget

Materials

• Pencil
• Paper

Steps

1. Set up the activity

• Download and print the activity and answer sheet.

2. Start the conversation

• Do all countries use the same currency?
• The term currency refers to the money used in a particular country.
• In Canada, we use the Canadian dollar to buy things, and we’re paid in dollars. France uses euros, Mexico uses pesos, and Japan uses yen.
• Countries decide what type of money will have legal tender in their territory. In other words, they decide what their official currency will be. For example, in 1999, France chose to replace francs with euros.
• How is the value of the Canadian dollar determined?
• The value of the Canadian dollar rises or falls every day because the Bank of Canada lets it float. That just means that the value of the Canadian dollar varies according to demand. So, basically, the more people want to buy Canadian products, the more our dollar is worth.
• What’s an exchange rate? An exchange rate shows the price of one currency compared to another. For instance, 1 Canadian dollar could be worth 0.64 euros, and 1 euro would be worth 1.55 Canadian dollars. So let’s say you have a 20 Canadian dollar bill, you could exchange it for 12.80 euros.

• Why do people buy things online?
• They can get items made far from home—from another area, another province in Canada or even another country.
• There’s often a greater selection, and it’s easier to compare prices and save money.
• For many people, shopping from the comfort of their home is just more convenient.

• When you shop online, how do you know what currency the price is in?
• Where is the company based? Look at the last letters of the website: .ca is usually used for sites from Canada, and .com for the United States, but that’s not always the case.
• Is there an abbreviation next to the price (for example, CAD$50)?
• Does the type of currency appear in the company’s profile or FAQ? Does the site let you choose your currency?
• Have you heard of the dollar, euro, yen and pound sterling before? They’re the currencies that people, businesses and governments trade the most. We’ll use them as examples in our activity.

3. How to convert currencies

You can use the currency converter on the Bank of Canada website to find exchange rates from the last few years. Go see for yourself!

To calculate the value in Canadian dollars of any amount in another currency, you divide the foreign currency price with the corresponding exchange rate.

• For example, if the currency converter says that the exchange for the euro is CAD 1 = EUR 0.65, and you want to know how much 45 euros is worth in Canadian dollars, do the following calculation:

• If you want to do the opposite and convert $50 Canadian Dollars into euros, multiply the amount by the exchange rate.

4. Start of the activity

Before you begin, hand out the printed activity sheet to students.

Your best friend invites you to their birthday party, and you want to surprise them with a special gift. You have $50 Canadian dollars that you can spend online, but you notice that prices on different websites appear in different currencies.

Start by practicing your calculation skills.

While you were researching, you found some potential gifts on a few different sites. Which one would be the least expensive?

Don’t forget that, this time, you’re starting with the foreign amount (foreign currency ÷ exchange rate).

Well done!

Which website has the least expensive gift in Canadian dollars?

5. Further discussion

We used the Bank of Canada exchange rates here, but are these rates the same as those at banks, credit card companies and exchange offices?

• No, because there are additional conversion fees.
• When you order things online, there are several things to factor in. Did you remember to account for shipping charges? Longer delivery times and customs charges if the product is coming from another country? Are there other factors that could affect the purchases you make online?

Ask your parents if they’ve ever bought something online without realizing the product was priced in a foreign currency. How did they find out? Did they spend more money than they expected?

Bonus activities

Mental math trick

You can challenge yourself by doing calculations in your head. Here’s a way to get an approximate value in Canadian dollars.

• Product price: USD 45
• Exchange rate example: CAD 1 = USD 0.80 (American dollars)
  Another way to think of it is that the US dollar is worth 20% more than the Canadian dollar.
• Calculation: To calculate 10% of the price, move the decimal point one place to the left. 10% of $45 = $4.5 20% of $45 = 4.5 + 4.5 = $9
  Add the 20% to the price in US dollars (45 + 9) to get the approximate value in Canadian dollars.
  So, USD 45 = CAD 54

Most international buyers use this method to quickly convert amounts and calculate approximate prices in their currency.

Try finding prices of items you like online and compare them with items from around the world. You can find out more about why people shop online.

• Be sure not to buy anything without carefully checking exchange rates, customs charges, payment security (is the site secure?) and delivery times and fees with your parents first.