math in the news: issue 86
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http://www.Media4MathPlus.com In this issue of Math in the News we look at the foreign exchange market and the rise of the Chinese Yuan. The Yuan has become a significant player in the foreign exchange market and we look at currency exchange, and how to convert from one currency to another by solving a proportion. This issue provides an excellent opportunity to introduce the mathematics of money on the international market.TRANSCRIPT
Math in the NewsIssue 86
The Rise of the Chinese Yuan
The Rise of the Yuan
The Chinese Yuan is becoming a more prominent currency internationally. Watch the following video to learn more.
http://youtu.be/bBSEvRNaA8c
The Rise of the Yuan
The Yuan is far from overtaking the role of the dollar in international markets, but it is now in the top 10 foreign currencies in use.
Note: These percentages are greater than 100% because two currencies are
involved in each transaction.
What is Currency Exchange?
Currency Exchange
If you’ve ever traveled to another country, you’ve had to deal with foreign exchange.
Let’s look at an example.
Currency Exchange
Suppose you’re traveling from Laredo, Texas, to Nuevo Laredo, Mexico. You find some souvenirs that cost 100 pesos. How much is that in dollars?
This is where exchange rate comes in.
Currency Exchange
Currency exchange rate tables are used to determine the value of something in another currency. Exchange rates vary from day to day, as you can see here for the exchange rate between US dollars and Mexican pesos.
Currency Exchange
Set up a proportion to solve.
Currency Exchange
Because the exchange rate varies, the price of 100 pesos in dollars varies.
$7.62
$7.79
Currency Exchange
On the business side, these types of transactions happen much more frequently.
Let’s look at an example.
Currency Exchange
Starbucks purchases coffee beans from international suppliers. For example, when Starbucks purchases a supply of beans from Colombia, it needs to pay for that in Colombians pesos.
Currency Exchange
Since it purchases a huge volume of Colombian coffee, to save money, Starbucks can purchase Colombian pesos when the exchange rate is favorable and use them later to purchase coffee beans.
Currency Exchange
Some commodities are priced in US dollars. For example, OPEC oil is priced in dollars. This simplifies the purchase of oil, since currency exchange fluctuations aren’t a factor.
What is the Foreign Exchange Market?
Foreign Exchange Market
Whenever one currency is exchanged for another, a bank or currency trader is involved. There is a small fee for the exchange, and this is how banks make money from foreign exchange.
Foreign Exchange Market
The Foreign Exchange Market (Forex) tracks the exchange rates for all currencies around the world. The exchange rates vary daily. The Forex deals with buying and selling currency.
Foreign Exchange Market
Some banks will purchase different currencies and keep them in reserve. As you saw from the Starbucks example, keeping a reserve of certain currencies avoids the daily fluctuations in currency pricing.
Foreign Exchange Market
The dollar remains the world’s largest reserve currency. This is an indication of the dominance of the US economy.
Foreign Exchange Market
In recent years the Chinese Yuan has become a growing reserve currency. More and more companies are paying in this currency or are asking to be paid in it. This is an indication of the growing influence of the Chinese economy.