Charles is a citizen of the Slovak Republic, where the domestic currency is the euro. While on holiday in London, where the domestic currency is the pound, he bought a T-shirt as a souvenir and paid $27\,\text{GBP}$ by card. How many euros was his bank supposed to charge him on his account? To check the transaction, he referred to his bank’s exchange rates table (see below).
His bank’s exchange rates table: Amounts are stated for $1\,\text{EUR}$. Valid as of 25.08.2023.
$$\begin{array}{|c|c|c|c|c|c|}\hline \small\text{Currency} &\small\text{Currency Name} & \small\text{Foreign Currency} & \small\text{Foreign Currency} & \small\text{Foreign Exchange} & \small\text{Foreign Exchange}\cr & & \small\text{(FC)} & \small\text{(FC)} & \small\text{(FX)} & \small\text{(FX)}\cr & & \small\text{“we buy“} & \small\text{“we sell“} & \small\text{“we buy“} & \small\text{“we sell“}\cr \hline \small\text{GBP} & \small\text{Pound Sterling (£)} & 0.8740 & 0.8398 & 0.8890 & 0.8333\cr\hline \end{array}$$
Charles asked his four classmates, Zuzana, Martin, Katka, and Jan, for help. Each of them used a different exchange rate to solve the problem.
Zuzana used the exchange rate FC “we buy“ because Charles bought pounds electronically (non-cash). She found that the euros on Charles’s bank account should decrease by: $$\frac{27}{0.8740}\doteq30.9\,\text{EUR}$$ Martin used the exchange rate FC “we sell“ because a bank sold pounds electronically (non-cash). He found that the euros on Charles’s bank account should decrease by: $$\frac{27}{0.8398}\doteq32.2\,\text{EUR}$$ Katka used the exchange rate FX “we buy“ because Charles bought pounds electronically (non-cash). She found that the euros on Charles’s bank account should decrease by: $$\frac{27}{0.8890}\doteq30.6\,\text{EUR}$$ Jan used the exchange rate FX “we sell“ because a bank sold pounds electronically (non-cash). He found that the euros on Charles’s bank account should decrease by: $$\frac{27}{0.8333}\doteq32.4\,\text{EUR}$$ Who got the correct result?
Martin
Katka
Zuzana
Jan
The term Foreign Currency (FC) refers to non-cash form (e.g., in an account).
The term Foreign Exchange (FX) refers to cash form (banknotes and coins).
FC „we buy'' - If a bank is buying foreign currency from you, in the form of non-cash electronic funds in a foreign currency and paying you in your domestic currency.
FC „we sell" - If a bank is selling foreign currency to you, particularly in the form of non-cash electronic funds in a foreign currency.
FX „we buy" - The exchange rate for the purchase of currency is used when a bank is buying foreign currency from you, and they pay you in your domestic currency.
FX „we sell" - The exchange rate for the sale of currency is used when a bank is selling foreign currency to you, and you pay in your domestic currency.