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Interpreting Exchange Rates on Websites, Articles, Charts and Graphs

For example: instead of stating that we are converting USD to CAD we would just write: .  This is an intuitive and accurate way to identify and think about exchange rates.  If you think in this manner (i.e. in a mathematical sense) when you read articles and blogs or examine charts and graphs online and in newspapers you will find yourself confused.  The reason is that you will see titles: USD-CAD, USD/CAD, USDCAD which in a mathematical sense would be . 

When you look at the data you’ll find that exchange rate number you will read is greater than 1 (for example: 1.23).  This is counterintuitive because when converting 1 CAD to X USD () you would expect the exchange rate to be greater than 1 since the USD is stronger than the CAD. 

The main reason for the confusion is that the titles: USD-CAD, USD/CAD, USDCAD are not written in a mathematical sense, but are written as abbreviations for “USD to CAD.”  This means that we are converting 1 USD to X CAD which is the exchange rate:  NOT the exchange rate: .

Remember that when you read and examine articles, charts and graphs, the titles you see are actually stating “USD to CAD” or “CAD to USD” they are not stating the mathematical expression  or . 

General Rule of Thumb to Identify Each Exchange Rate

Regardless of the title of the article, graph or chart here is a general rule of thumb to identify which exchange rate you are reading based on the number. 

This will always apply if the USD is stronger than the CAD (which is likely to remain the case for many years):

Identify  Exchange Rate

If this number is greater than 1 the exchange rate is  since we are converting 1 USD to CAD and the USD is stronger than the CAD - thus you will get more than 1 CAD for 1 USD.

Identify  Exchange Rate

If this number is less than 1 the exchange rate is  since we are converting 1 CAD to USD and the CAD is weaker than the USD - thus you will get less than 1 USD for 1 CAD. 

This series of articles is written by my son, Evan Argentino, who graduated with a Financial Economics Degree from UTM and knows a great deal about Exchange Rate Calcluations between the US and Canadian Dollar - many thanks to Evan for providing this information.

Back to the first page about Converting Exchange Rate Differences between the US and Canadian Currency

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Rates in above table from Bank of Canada website

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