Skip to main content

Understanding currency rates is as simple as going to a carnival

Jun 09, 2016 11:47AM ● Published by Neighbors Magazines

by Steve Ciaccio, MBA, CPA, CFP

At some carnivals, you do not pay for each ride or meal with cash. First, you buy tickets at a booth. Then, you give the tickets to the various vendors for rides, meals, souvenirs, etc. If the price of a ticket is one dollar and a meal costs three tickets, then the price of the meal is three dollars. What would happen if the next day, the price of tickets dropped to seventy five cents? If the price of a meal is still three tickets, then the cost of the meal is now $2.25 in terms of U.S. dollars. The opposite would happen if the price of tickets went up. In each scenario, the cost of lunch is three carnival tickets, but the price in dollars fluctuates.

It is much the same when visiting foreign countries or buying products from them. Think of the foreign currency as tickets at the carnival. The vendor charges a price of a product in terms of his or her local currency. For example, when you buy something in Japan, you will have to use U.S. dollars to buy a number of Japanese Yen, then use the Yen to buy the product. The number of U.S. dollars and cents that you must pay in order to purchase a unit of another country’s currency is called the exchange rate. The exchange rates for many foreign currencies fluctuates throughout the day, and also throughout the night. When the exchange rates fluctuate, the cost of the product can change in terms of U.S. dollars even though the local vendor keeps the price steady in the local currency. It works very similarly to the carnival tickets. Exchange rates have a similar effect when investing in foreign investments.

What would cause exchange rates to fluctuate? That is the subject of a very large and complex set of variables. However, it might be easier to think of it in terms of an auction. When there are a lot of bidders bidding on one item at an auction, the price tends to rise. If there are a lot of sellers selling the same item at an auction to only a few buyers, the price of the item will likely not go very high. As more sellers enter the market, the price might drop from its current level. Although some countries exert a level of control over their currency’s exchange rate, supply and demand drives the prices of many currencies.

Investing in foreign currencies and in foreign investments can be very risky. This article is not a recommendation to do so. However, it is intended to make the effects of foreign currency exchange rates understandable so you can see how it affects our daily lives.

Food for thought…understanding financial management is like putting together a very large puzzle. The more pieces that you fit into place, the easier it is to figure out the rest of the picture.

All the best to you!

News Foreign currency Currency rates
  • Tri-Cities Exchange Club Breakfast

    09/26/2017
    07:00AM — 08:00AM

    Every Tuesday morning, 7-8am, men and women meet for breakfast at Colonial Cafe on Randall Road, ...


  • Coat Drive

    09/26/2017
    08:00AM — 05:00PM

    Please help those in need in our community with donations of new or clean, gently-used winter ite...


  • Sculpture on the Prairie

    09/26/2017
    10:00AM — 05:00PM

    Fine Line Creative Arts Center is proud to annouce it's first Sculpture on the Prarie exhibit. E...


  • Wednesday Walking Club

    09/27/2017
    08:00AM — 09:00AM

    Wednesdays, April 5–October 25, 8–9 AM Free drop-in program for all ages Get fit the old-fashio...


  • Wednesday Walking Club

    09/27/2017
    08:00AM — 09:00AM

    Wednesdays, April 5–October 25, 8–9 AM Free drop-in program for all ages Get fit the old-fashio...


  • Coat Drive

    09/27/2017
    08:00AM — 05:00PM

    Please help those in need in our community with donations of new or clean, gently-used winter ite...


  • Sculpture on the Prairie

    09/27/2017
    10:00AM — 05:00PM

    Fine Line Creative Arts Center is proud to annouce it's first Sculpture on the Prarie exhibit. E...


  • Fabyan Villa Museum & Japanese Garden open

    09/27/2017
    01:00PM — 04:30PM

    The Fabyan Villa Museum and Japanese Garden will return to a public hours schedule starting on Su...


  • Million Dollar Quartet

    09/27/2017
    01:30PM

    Paramount Theatre's rollicking 2017-18 Broadway Series opener is Million Dollar Quartet, the wild...


  • Coat Drive

    09/28/2017
    08:00AM — 05:00PM

    Please help those in need in our community with donations of new or clean, gently-used winter ite...


  • Nature Tykes (for 3 year olds)

    09/28/2017
    09:30AM — 10:30AM

    In this program, for 3-year olds and their parents, grandparents or guardians, we’ll explore the ...


  • Sculpture on the Prairie

    09/28/2017
    10:00AM — 05:00PM

    Fine Line Creative Arts Center is proud to annouce it's first Sculpture on the Prarie exhibit. E...


  • Fabyan Villa Museum & Japanese Garden open

    09/28/2017
    01:00PM — 04:30PM

    The Fabyan Villa Museum and Japanese Garden will return to a public hours schedule starting on Su...


  • Little Naturalists

    09/28/2017
    01:00PM — 02:00PM

    In this hour-long program for 4-5-year olds, children will discover the wonders of nature through...


  • Million Dollar Quartet

    09/28/2017
    01:30PM

    Paramount Theatre's rollicking 2017-18 Broadway Series opener is Million Dollar Quartet, the wild...


  • Please join the Batavia Chamber of Commerce, Batavia Mayor Jeffery Schielke, and Batavia represen...


  • Comedy at Zanies

    09/28/2017
    08:00PM

    See nationally known comics along with some of the country’s hottest new talents for a night full...


  • Coat Drive

    09/29/2017
    08:00AM — 05:00PM

    Please help those in need in our community with donations of new or clean, gently-used winter ite...


  • Moms Connect

    09/29/2017
    09:00AM — 10:15AM

    St. John Lutheran Church at 7214 South Cass Avenue in Darien, IL will sponsor a new Bible-based s...


  • Sculpture on the Prairie

    09/29/2017
    10:00AM — 05:00PM

    Fine Line Creative Arts Center is proud to annouce it's first Sculpture on the Prarie exhibit. E...


  • Story Time at Creek Bend Nature Center

    09/29/2017
    10:30AM — 11:00AM

    Treat your child to Story Times at Creek Bend Nature Center. This popular program series is for c...


  • Million Dollar Quartet

    09/29/2017
    01:30PM

    Paramount Theatre's rollicking 2017-18 Broadway Series opener is Million Dollar Quartet, the wild...


  • Comedy at Zanies

    09/29/2017
    08:00PM

    See nationally known comics along with some of the country’s hottest new talents for a night full...


  • Live Entertainment: DJ

    09/29/2017
    09:00PM — 11:55PM

    Join us on historic Bourbon Street in Jambalaya at Pheasant Run Resort every Friday for live ente...


  • LEHSO Resale

    09/30/2017
    07:00AM — 02:00PM

    LEHSO Clothing Resale The Lisle Elementary Home & School Organization clothing resale is a bia...


  • The Holmstad’s 40th Annual Bazaar

    09/30/2017
    09:00AM — 03:00PM

    The community is invited to wrap up their holiday shopping early by stopping in at The Holmstad’s...


  • Sculpture on the Prairie

    09/30/2017
    10:00AM — 05:00PM

    Fine Line Creative Arts Center is proud to annouce it's first Sculpture on the Prarie exhibit. E...


  • Green Fair

    09/30/2017
    10:00AM — 04:00PM

    Eco Vendors, Farmer's Market, Recycling Extravaganza, Green Speakers, Food Trucks, Children's Mak...


  • National Public Lands Day

    09/30/2017
    10:00AM — 01:00PM

    Volunteers are needed to help us plant trees, collect seeds and clear brush at our National Publi...


  • Million Dollar Quartet

    09/30/2017
    01:30PM

    Paramount Theatre's rollicking 2017-18 Broadway Series opener is Million Dollar Quartet, the wild...


  • Comedy at Zanies

    09/30/2017
    07:30PM

    See nationally known comics along with some of the country’s hottest new talents for a night full...


  • St. Charles Singers: Mozart Journey XII

    09/30/2017
    07:30PM — 09:00PM

    The St. Charles Singers will launch its 34th concert season this fall with a new installment of t...


  • Live Music

    09/30/2017
    09:00PM — 11:55PM

    Join us on historic Bourbon Street in Jambalaya at Pheasant Run Resort for live bands every Satur...


  • Comedy at Zanies

    09/30/2017
    09:45PM

    See nationally known comics along with some of the country’s hottest new talents for a night full...


Neighbors Magazines
Neighbors Magazines, 28 South Water Street, Batavia, IL 60510, 630-995-3482, www.welcometoneighbors.com
Contact us