In this part of the activity, you will learn about currency exchange rates.

When businesses trade goods and services they rarely exchange the actual item. More commonly they use money to buy what they need, and then sell what they have to get more money. Money is used, in this way, as a "means of exchange" so that buying and selling is simplified.

The same principle works when selling to and buying goods from other nations. There is one problem, however. Most nations have different types of money. These "local currencies" have different names and very different values. What is the local currency in the United States called? The dollar of course. But to buy something from China you would have to use their local currency, the yuan. A one yuan note is pictured above. The price of an item in China is given in yuan just as the price of something in the United States is given in dollars.

How much do you think a hamburger would cost in various local currencies? Each year The Economist magazine gives the prices of Big Macs in different countries. Look at a table to see how much a Big Mac cost in different countries in April, 1998.

Where did Big Macs cost the most? Well you can't actually tell from this chart. Even though it took 11,000 Russian rubles to buy a Big Mac, the real cost of the hamburger isn't necessarily higher than in the other countries because the Russian ruble and the Canadian dollar aren't worth the same.

To find out where Big Macs cost the least you have to "convert" each currency into a common type of money - like the US dollar. To do this you need to know the "currency exchange rate" or how much one currency is worth in terms of another. To simplify this task there are several "currency converters" on the Internet.

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