Question

A person bought some Australian dollar of NRs 1,50,000 according to the exchange rate. Australian dollar 1 = NRs 77.02. After five days, in compare to Australian dollar the Nepali currency is devaluated by 5%. What is the profit or loss of that person when he exchanged the dollors he had into Nepali rupees again in that day? Find it.​

Answer 1

5.26% profit (NRs 7,894.24)

Explanation:

The exchange of 1,50,000 NRs to A$ will give ...

A$ 1/(NRs 77.02) = x /1,50,000

x = A$ 1,50,000/77.02 = A$ 1947.54 . . . . . (rounded down)

If the Nepali rupees are devalued by 5%, then what did buy A$ 1 will now buy only A$ 0.95. Then the exchange back to NRs will give ...

(NRs 77.02)/(A$ 0.95) = x/(A$ 1947.54)

x = NRs (1947.54)(77.02/0.95) = NRs 1,57,894.24

The effective profit is the difference from the amount initially exchanged, NRs 7,894.24, or ...

(1,57,984.24/1,50,000 -1) × 100% ≈ 5.26%

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Additional comment

Except for the loss in the exchange due to rounding down, the profit would be 1/0.95 -1 = 5.2632%. Instead, it is 5.2628%. This is why investors move their money to investments that retain their value when the local currency is losing its value.