Exchange rates - when to multiply or divide?

Question

Disclaimer: These are hypotheticals, not real exchange rates.

When doing exchange rate calculations, is the currency to the left the currency you're exchanging, and the right the one you're converting to?

Example:

USD/GBP= 0.63674

and

GBP/USD=1.5704

If I had $50USD would my calculation to convert it into GBP be:

50 x 0.63674 = £31.84 (rounded up from 31.837)

but not this calculation:

50 / 0.6374 = £78.52

Similarly, for the second one would it be:

50 x 1.5704 = £78.52

not

50 / 1.5704 = $31.83

Basically, when would I divide, when would I multiply?

Is the basic rule:

USD x Exchange Rate = GBP (or whatever currency)

GBP / Exchange Rate = USD

To change pounds to dollars multiply by [number]

To change dollars to pounds divide by [number]

Any help on this is gratefully appreciated.

Answer 1

Just remember that you can't 'multiply' the same currency. For example, If you have pounds in the numerator, you have to multiply by the factor that has pounds in the denominator, in order for them to cancel.

Here is an example (from Investopedia:)

If the USD/CAD exchange rate is 1.0950, that means it costs 1.0950 Canadian dollars for 1 U.S. dollar. The first currency listed (USD) always stands for one unit of that currency; the exchange rate shows how much fo the second currency (CAD) is needed to purchase that one unit of the first (USD).

This rate tells you how much it costs to buy one U.S. dollar using Canadian dollars. To find out how much it costs to buy one Canadian dollar using U.S. dollars use the following formula: 1/exchange rate.

In this case, 1 / 1.0950 = 0.9132. It costs 0.9132 U.S. dollars to buy one Canadian dollar. This price would be reflected by the CAD/USD pair; notice the position of the currencies has switched.

Answer 2

The easiest way to read it is:

• GBP/USD = 1.5704
  • For 1 GBP, you get 1.5704 USD (multiply)
  • If you have an amount in USD, divide it by 1.5704 to get the amount in GBP
• USD/GBP = 0.63674
  • For 1 USD, you get 0.63674 GBP (multiply)
  • If you have an amount in GBP, divide it by 0.63674 to get the amount in USD.

Answer 3

I hate the fact that everyone makes this harder than it is.

I will simplify the way I was searching for but ended up working it out myself.

Basically, if you have to use the same 'currency sign' in the equation then you divide it

if you have to use opposite 'currency signs' in the equation it's multiply.

that's how you know when to use them as you understand the methods