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Do You Have a Yen to Go to College?

Key Economic Concepts:

• Choice
• Currency
• Decision Making
• Exchange Rate
• Functions of Money
• Incentive

Description:

Carlos is a senior at local high school. When he graduates, he plans to study computer animation. He has applied to a number of two- year programs, and recently, he received letters of acceptance from four schools, one in the United States and three abroad. Carlos has funding from several sources, providing him with a $5,000 scholarship to be used at the school of his choice, a student loan of $5,000, and $6,000 of personal savings. Your job is to evaluate the options that will allow Carlos to complete a 2-year computer animation program, given the $16,000 of funding. The real issue for Carlos to consider is what he can afford. Listed below are the four schools to which Carlos has been accepted, including the package of options and expenses for each.

Lesson Objectives:

Students will:

1. Describe the role of foreign currency in transactions in other countries.
2. Use exchange rates to calculate the dollar-equivalent cost of tuition in another country.
3. Take account of changes in exchange rates between currencies over time.
4. Analyze the incentive effects of exchange rates as they affect purchases of foreign foods and services.

Introduction:

Carlos is a senior at local high school. When he graduates, he plans to study computer animation. He has applied to a number of two-year programs, and recently, he received letters of acceptance from four schools, one in the United States and three abroad. Carlos has funding from several sources, providing him with a $5,000 scholarship to be used at the school of his choice, a student loan of $5,000, and $6,000 of personal savings.

Your job is to evaluate the options that will allow Carlos to complete a 2-year computer animation program, given the $16,000 of funding. The real issue for Carlos to consider is what he can afford. Listed below are the four schools to which Carlos has been accepted, including the package of options and expenses for each.

Resources:

• EconEdLink Calculator: This link will allow access to the EconEdLink Calculator for the first activity of this lesson.
  www.econedlink.org/lessons/docs_lessons/126_calculator.html
   
• RatesFX Currency Converter: At this website, students will be able to find the current dollar rates of exchange for the yen, pound, and markka for the second activity of this lesson.
  www.ratesfx.com/rates/rate-converter.html ^[1]
  
  
• Travelocity: This link will take students to the Travelocity homepage to allow them to find the price of round-trip airfare for the third activity of this lesson.
  www.travelocity.com/ ^[2]
   
• Japanese Currency: At this website, pictures of the Yen can be found.
  www.cedarville.edu/academics/education/resource/geo/japan/economy.htm ^[3]
   
• British Currency: At this website, pictures of the Pound can be found.
  www.woodlands-junior.kent.sch.uk/customs/questions/money/coins.htm ^[4]
   
•  Finnish Currency: At this website, pictures of the Markka can be found.
  www.woodlands-junior.kent.sch.uk/customs/questions/money/coins.htm ^[4]
   
• FXConverter- Currency Converter for 164 Currencies: FXConverter is a multilingual currency converter for over 164 currencies and 3 metals. It uses daily OANDA Rates®, the touchstone foreign exchange rates used by corporations, tax authorities, auditing firms, and financial institutions. The filtered rates are based on information supplied by leading market data contributors.
  www.oanda.com/converter/classic?lang=en%0D%0D%0D%0D ^[6]

Process:

Cost per year to complete a two-year program in computer animation

The Tokyo Technical Institute

Tuition: 750,000 yen
Room & Board: 250,000 yen
TTI scholarship: 129,000 yen

The London School of Technology

Tuition: 3,600 pounds
Room & Board: 1200 pounds
LFS scholarship: 600 pounds

The University of Helsinki

Tuition: 29,810 markka
Room & Board: 12,466 markka
UH scholarship: 10,840 markka

University of California at Los Angeles

Tuition: 5,000 dollars
Room & Board: 4,000 dollars
UCLA scholarship: 3,000 dollars

Activity 1:

Exchange Rates

Whoa! What is a yen, a markka, and a pound? In the United States our currency is the dollar; in Japan, the United Kingdom, and Finland, the currencies are the yen, the pound, and the markka. So, what exactly is currency? People use currency, in the form of coins and bills, as payment for goods and services. What forms do United States currency take? [Answer: $1, $5, $10, $20, $50, $100 for the bills and the penny; nickel, dime, quarter, half-dollar, and $1 dollar for the coins] Each individual country has its own currency that is accepted as payment for goods and services. Is it possible that all currencies are worth the same amount? Tuition in Tokyo is 580,500 yen, in London it is 3,000 pounds, and in Helsinki, it is 29,810 markka. These amounts clearly differ from the $5,000 cost of tuition at UCLA. Carlos must figure out a way to compare the tuition prices listed at each school in order to make a decision.

EconEdLink Calculator

Fortunately, there is a system in place that allows the currency of one country to be exchanged for the currency of another. This system is the currency exchange market and it provides the prices of one currency in terms of another. For example, let's price the currencies of Japan, the United Kingdom, and Finland in terms of how much of each a single dollar will buy.

$1 =	129	.	0	yen
$1 =	0	.	6	pounds
$1 =	5	.	42	markka

These exchange rates will help Carlos compare the costs between schools. With the calculator below and simple proportion, we can calculate the dollar cost of tuition at the Tokyo Technical Institute. Tuition is 580,500 yen, and we know 1 dollar = 129 yen. As a proportion, we write 1 over 129 equals n dollars over 580,500 yen.

1 dollar	=	n dollars
129 yen		580,500 yen

 

If you remember back to your basic math class, you can solve a proportion like this by multiplying the cross products and dividing.

As a result, 1 multiplied by 580,500 = n multiplied by 129. To solve for n, divide both sides of the equal sign by 129 and we find that n = 4,500. What this tells us is that tuition of 580,500 yen is equivalent to $4,500. How does this compare to the tuition at UCLA? [Answer: $500 less] Based on the exchange rates listed above, convert the costs and scholarship at each school into dollar amounts.

A.  The Tokyo Technical Institute

Tuition: 750,000 yen
Room & Board: 275,000 yen
TTI scholarship: 129,000 yen

3. Dollar cost of attending school in Tokyo _[$6,945.73]

B.  The London Film School

Tuition: 3,600 pounds
Room & Board: 1200 pounds
LFS scholarship: 600 pounds

7. Dollar cost of attending school in London:[$7,000]

C.  The University of Helsinki

Tuition: 29,810 markka
Room & Board: 12,466 markka
UH scholarship: 10,840 markka

11. Dollar cost of attending school in Helsinki. [$6,500]

12. List the dollar cost of each school in the space below:

13. Based on the dollar costs above, which schools can Carlos afford to attend?

14. What other additional costs should Carlos consider when making his decision?

Activity 2:

Changes in Rate of Exchange

Carlos was surprised the other day when his friend Janet asked him how the movement in exchange rates might affect his cost of attending school outside of the United States. Carlos had to admit he didn’t know exchange rates fluctuated. Janet told him that rates of exchange actually change on a daily basis and that he should check out current rates on the Internet. Find the current dollar rates of exchange for the yen, pound, and markka at the following site,www.ratesfx.com/rates/rate-converter.html ^[1]

1. Record the current exchange rates for the yen, pound, and markka.

2. In comparison with the original rates of exchange, does the dollar buy more or less of each of the other currencies? [Less yen, more pounds, more markka.]
$1 buys _____ yen
$1 buys _____ pounds
$1 = _____markka

Janet also told Carlos that when the dollar buys fewer yen, people say the dollar has depreciated against the yen; when it buys a greater number of pounds or markka, we say the dollar has appreciated against the pound and the markka. How do you think these shifts in exchange rates will affect Carlos’s cost to attend school outside of the United States? [It will make it more or less expensive.]

3. Utilize the exchange rate converter to recalculate the dollar cost of each school based on the current exchange rates. www.ratesfx.com/rates/rate-converter.html ^[1]

4. What conclusion would you make about the cost of attending school abroad when the dollar appreciates against a foreign currency? [Less expensive.]

5. What conclusion would you make about the cost of attending school abroad when the dollar depreciates against a foreign currency? [More expensive.]

Activity 3:

Study Option Summary

Select one of the foreign study options and prepare a written summary that will help Carlos make a decision about which school to attend. The summary should include the following items:

1. Name of the school, its location, and cost to attend two years at the current rate of exchange.
   
2. Price of a round-trip air fare.
   http://travelocity.com/ ^[2]
3. Photo of the currency
   Yen: www.cedarville.edu/academics/education/resource/geo/japan/economy.htm ^[3]
   Pound: www.woodlands-junior.kent.sch.uk/customs/questions/money/coins.htm ^[4]
   Marrka: http://upload.wikimedia.org/wikipedia/commons/3/35/FinnischeMuenzen.jpg ^[5]
4. Historical exchange rates. Record and graph five rates of exchange, from two years ago to the current date, one year ago, six months ago, three months ago, one month ago, and the currency rate. At the following web site, enter in the date box the day, month, and year for two years ago. As an example, if today is Feb 10, 2000, enter 02/10/00. In the second country drop-down box, select the country on which you are writing the brief and then click ‘convert now’. Follow the same process to locate the other rates.
   www.oanda.com/converter/classic?lang=en ^[6]
   Once you have the five rates of exchange, setup a simple graph with the dates on the horizontal axis and the exchange rate per dollar on the vertical axis.
   These graphs are easily generated in Microsoft Excel by entering the five dates and the five corresponding rates into two columns and then clicking on Excel's charting function to created the resulting graphs.
   Example:
   
    
   

Activity 4:

The Decision

1. Group students by the foreign study option they selected. Ask each group to review and compare their summaries in preparation for a class discussion.
2. On the board, record the cost information for the University of California option. Ask a representative from each group to also record their cost information on the board, in current dollars. Discuss the following questions:
   1. Based on current exchange rates, which schools are too expensive, given Carlos’s budget of $16,000. [Answers may vary depending on exchange rates, but as of 02/10/00, Tokyo is too expensive.]
   2. Based on current exchange rates, which schools can Carlos afford? [Answers may vary, but as of 02/10/00, London and Helsinki are affordable.]
   3. Based on the historical exchange rate information, is the dollar appreciating or depreciating against the yen? [Depreciating.] If Carlos is scheduled to graduate in the Spring of 2000, does it look as if the dollar will recover enough to make Tokyo an affordable option? [Probably not.]
   4. Based on the historical exchange rate information, is the dollar appreciating or depreciating against the pound and the marrka? [Appreciating, appreciating.] What implication does the appreciation of the dollar have in terms of the cost of Carlos attending school London or Helsinki? [More affordable.]
   5. What other information would be useful in helping Carlos make a decision about which school to attend? [School quality and reputation, are the foreign schools really that much better than the US school? Could Tokyo offer a higher scholarship? How badly does Carlos really want to attend school outside of the United States?]
   6. Exchange rates are an important factor to consider when buying goods or services in a foreign country. In the case of Carlos, the rate of exchange. significantly affected his decision on where to attend school.
   7. Based on the costs associated with each school and Carlos’s budget, which school would you recommend he attend? [Answers will vary.]

Links Used:

1. ^{^ ^ ^} "www.ratesfx.com/rates/rate-converter.html" - (www.ratesfx.com)
2. ^{^ ^} "http://travelocity.com/" - (travelocity.com)
3. ^{^ ^} "www.cedarville.edu/academics/education/resource/geo/japan/economy.htm" - (www.cedarville.edu)
4. ^{^ ^ ^} "www.woodlands-junior.kent.sch.uk/customs/questions/money/coins.htm" - (www.woodlands-junior.kent.sch.uk)
5. ^{^} "http://upload.wikimedia.org/wikipedia/commons/3/35/FinnischeMuenzen.jpg" - (upload.wikimedia.org)
6. ^{^ ^} "www.oanda.com/converter/classic?lang=en%0D%0D%0D%0D" - (www.oanda.com)

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