Question

"After finals, you have decided to take a trip to Cancun MX. At the airport you stop at the Travelex office to buy 15,000 Mexican pesos for spending money on the Trip. Travel ex is quoting MXN at 21.43 Ask/20.27 Bid.

How much will it cost in USD to buy the 15,000 pesos?

$700
$740
$3,214
$3040"

Answer 1

$740

To calculate the cost in USD to buy 15,000 Mexican pesos, use the ask rate (selling rate) because you are buying pesos. Multiply the amount of pesos by the ask rate: 15,000 pesos * 21.43 MXN/USD = $740.

Step-by-step explanation:

When exchanging currency, two rates are quoted: the bid rate (buying rate) and the ask rate (selling rate). In this scenario, you are buying Mexican pesos, so you need to use the ask rate. The ask rate tells you how much of the counter currency (USD in this case) you need to spend to get one unit of the base currency (Mexican pesos).

In this case, the ask rate is 21.43 MXN/USD, meaning you'll need 21.43 Mexican pesos to buy 1 USD. To find out how much it costs in USD to buy 15,000 pesos, you multiply the amount of pesos by the ask rate: 15,000 pesos * 21.43 MXN/USD = $740.

Understanding currency exchange rates and how bid and ask rates work is crucial for travelers to ensure they get the best value when buying foreign currency. Familiarizing yourself with these concepts can help you make informed decisions when exchanging money for international trips.