Why is 1 Canadian Dollar 80 Cents US but 1 US Dollar is 1.25 Canadian?

The Basics of Currency Exchange

Simple math is the key to understanding the exchange rates between Canadian and US dollars. However, the exchange rate is not a fixed value but fluctuates based on market conditions.

1 Canadian Dollar 0.80 US Dollars (or 80 Cents)

When we say 1 Canadian dollar (CAD) is 80 cents US, this is due to the current exchange rate. The conversion can be understood using fractions. If 1 CAD is equivalent to 0.80 USD, then 1 USD would be equivalent to:

1/0.80 1.25 CAD

This means that 1 US dollar is worth 1.25 Canadian dollars. Let's break it down further:

Understanding the Exchange Rates

The exchange rate is determined by the demand and supply of currencies in the foreign exchange market. Here’s a simple way to understand it:

1 Canadian Dollar (CAD): This is worth 0.80 US Dollars (US). 1 US Dollar (USD): This is worth 1.25 Canadian Dollars (CAD).

Examples and Comparisons

Let's look at some examples:

Example 1: Canadian Quarters and US Dollars

Each Canadian quarter is worth 0.20 US dollars. Therefore, four Canadian quarters (1 CAD) are worth 0.80 US dollars. Conversely, five Canadian quarters (1 CAD) are needed to make 1.00 US dollars.

Example 2: Ratios and Fractions

Let's consider the ratios:

100:80 (which simplifies to 5:4)

125:100 (which simplifies to 5:4)

Both ratios represent the same exchange rate. When you understand these ratios, you can easily convert between the two currencies.

Factors Influencing Exchange Rates

Exchange rates fluctuate due to various factors:

Market Demand and Supply: Higher demand for a particular currency can cause its value to rise. Political and Economic Stability: Stable countries with strong economic policies often see their currencies valued more highly. Interest Rates: Higher interest rates can attract foreign investors, increasing the value of the currency. Inflation Rates: Higher inflation can decrease the value of a currency.

For instance, in the current market, the Canadian dollar (CAD) is trading at a rate where 1 CAD is equivalent to 0.806136 USD. This means that:

1/CAD 1.240485 USD 0.806136

Thus, to get back to CAD 1 from USD 1, the rate is 1.240485.

Conclusion:

The exchange rates between Canadian and US dollars are determined by complex economic factors. Understanding the math and the fluctuating nature of exchange rates can help you navigate the foreign exchange market with more confidence.