Australian and New Zealand Dollar

Readers Question:

Part A ii)
On 1 July, AUD1 = NZD 1.10. On 1 August, AUD1 = NZD 1.15.

On 1 July, your aunt in New Zealand booked the accommodation your families will stay in when you have a family reunion in Melbourne in August. She expects this to cost NZD 5400 when she pays the bill on August 1. You agreed to cover the costs she might incur if any exchange rate fluctuations took place between these dates. Will you have to help out? How much will you have to pay?

Again the important thing to note is that the Australian Dollar has appreciated in value. In August the Australian dollar now gains more NZD. It has appreciated by 4.5%. Therefore the cost of buying Australian goods will be higher for people paying with NZD.

Example of Exchange Rate Calculations

To find the cost of 100 NZD. You divide 100 / 1.1 – 90.9. Therefore the cost of 100 NZD is 90.9 Australian Dollar

If the exchange rate appreciates, then the new cost in Aus dollars will be 100 / 1.15 = 86.9. Therefore you need more New Zealand Dollars to buy the same amount of Australian Dollars.

To find the cost of 100 Aus Dollars you multiply 100 * 1.1 = 110

there are more steps, but this is the basics of exchange rate calculations