The price of the train is 23 CHF, the conversion rate CHF > EUR is 1.1 then the Price in EUR should be calculated as follows: 23CHF MLN * 1,1 = 25,3 EUR MLN. Why in the case the author divides by the currency rate? This would have been correct if the currency rate was EUR > CHF. Right?
where is it mention that revenue is 23M, I didn't see it.
Also, in the final calculation, how total revenue was established?
Hi Barbara,
Currency conversions are tricky! I encourage you to have a bit of a read on them (and try the calcs yourself). (anonymous provided a good answer here)
Thanks Ian, cristal clear
Hi there,
If you have this issue on a recurring basis, try to develop an abstract logic for how to handle these questions. Then try to remember 1-2 examples that you can always refer back to during the interview and then just replace the currencies / numbers.
Best,
Cristian
Hi,
The approach in the case is correct.
The exchange rate is 1,1 CHF/EUR. That means that one CHF costs 0.9 = (1/1,1) EUR or, conversely, one EUR costs 1,1 CHF.
If you are not able to grasp this intuition, you can think about it in a mathematical way:
to get the EUR amount, we can establish the following equation: x EUR = your amount in CHF / (CHF/EUR). See how only if you divide your amount by the exchange rate, you will get to a result.
CHF > EUR if implies CHF is dearer than EUR is to be interpreted as 1 CHF = 1.1 EUR .
(editiert)
I agree with Barbara - when I looked up how to read exchange rates the below is what I found (google>pimco - understanding currencies)
“The exchange rate gives the relative value of one currency against another currency. An exchange rate GBP/USD of two, for example, indicates that one pound will buy two U.S. dollars. The U.S. dollar is the most commonly used reference currency, which means other currencies are usually quoted against the U.S. dollar.”
By the same token CHF/EUR of 1.1 implies 1CHF = 1.1EUR
The above makes a huge difference to the margin
