Exchange Rate Questions on Currency Appreciation
Numerical reasoning tests are psychometric measures that test the degree to which your mental abilities allow you to make sense of numerical data. Questions in these assessments often consist of problems related to currency conversions where you will have to convert one currency into another or solve related problems. Sure, for a beginner this may not be an easy task however there are several steps you can take to increase your competence to succeed in these questions. Below we will look at the way to approach exchange rate questions where you will be required to calculate percentage by what one currency strengthened against the other.
How to work out numeracy exchange rate questions
A number of candidates fail to answer currency conversion questions in their numeracy test as they are not aware of simple rules that apply to exchange rate problems. To demonstrate this, consider the example below example.
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From year 1 to year 2, by what percentage GBP strengthened or weakened against EUR?
As you can see from the above you need to find by what percentage pound has strengthened or weakened against the euro between year 1 and 2. If you find this difficult don’t fret and follow the three simple steps presented below.
Solution
- The first step to take is to calculate the value of euro in year 1 (1 / 1.1751 which equals 0.8509). If you are unsure how to arrive at this calculation you can come back to earlier tutorial which explains in detail how to convert one currency into another by means of setting up similar equation to the above. Note that you need to have thorough understanding of this concept in order to go ahead with more advanced currency conversion questions.
- Secondly, you need to compare value of euro in year 1 with value of euro in year 2 and conclude whether the exchange rates strengthened or weakened. From the above calculation you know that if you had one euro in year one you would get GBP 0.8509 for it whereas in year two you would get GBP 0.6045. So what is your conclusion?
- The correct answer is that the sterling has strengthened against euro. In other words, the euro weakened against pound sterling because you can trade more EUR per pound in year 2 compared to year 1. However some of you may argue that pound has weakened against euro because its rate of exchange has decreased from 0.8509 to 0.6045. However be careful and note that sterling had to strengthen against the Euro because in year one you could buy more pounds with one euro than in year two and that means that the value of sterling against euro has strengthened. For further reference you can view currency depreciation tutorial to see another practical example so that you can distinguish between these two concepts with confidence in your numerical reasoning tests.
- Finally to get to the result you need to work out the percentage by which GBP has strengthened against EUR between these two years. To do this simply work out percentage decrease of the values (0.8509 – 0.6045) / 0.8509 x 100 = 28.95%. Hope that you found this tutorial useful.