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MathidiaMathematics Academy
Financial mathematics and modelling
Lesson 74 of 75
Challenge

Tax and exchange rates

Objective. Apply rates accurately in financial contexts.

  1. 1. Learn
  2. 2. Worked example
  3. 3. Practice
  4. 4. Feedback
  5. 5. Continue

Learn: the key idea

Applying tax and exchange rates accurately means multiplying a given amount by an appropriate percentage multiplier or conversion rate within a realistic financial context. Income tax or VAT problems typically require finding a percentage of an amount and either adding it (for tax added at point of sale) or subtracting it (for tax deducted from earnings). Currency exchange problems multiply an amount by the exchange rate to convert from one currency to another, and divide by the same rate to convert back the opposite way. For example, converting £150 to euros at a rate of 1.15 euros per pound gives 150 × 1.15 = 172.50 euros, while converting the other direction requires dividing by 1.15 instead.

Worked example

A trader converts £240 into US dollars using an exchange rate of 1.28 dollars per pound. Find the amount received in dollars.

£240.00
Money illustration for £240
  1. 1Identify that converting pounds to dollars requires multiplying by the exchange rate.
  2. 2Substitute the amount and rate: 240 × 1.28.
  3. 3Calculate the product: 240 × 1.28 = 307.2.
  4. 4State the result with the correct currency unit.

Answer: $307.20

Concept mastery

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Practice

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Common mistake. Pupils often multiply by the exchange rate when converting back to the original currency instead of dividing, applying the conversion in the wrong direction. Always check which currency is being converted from and divide when reversing the original multiplication.

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