Customs Duties and Foreign Exchange

Foreign Exchange

• If you travel to a different country, you need to purchase the local currency.• Same thing happens to people from other countries travelling to Canada, they need Canadian dollars.

• In Canada, you can buy and sell foreign currency at banks, credit unions and foreign exchange brokers.

• Foreign exchange rates are stated with a buying rate and a selling rate.

Buying rate the rate at which the currency is bought from you

Selling rate the rate at which the currency is sold to you

Selling rate > Buying rate The difference is the amount the bank receives for making the

transaction.

Examples

1. You want to buy 1500 Swiss francs. How much will it cost you to purchase this currency?

Method 1: Each Swiss franc costs $0.9666 Canadian dollars (selling rate)

1500 x 0.9666 = $1449.90

Method 2:Let x represent the amount of Canadian dollars needed to purchase Swiss francs.

1500 Swiss francs = x Canadian dollars

1 0.9666 1500 x

= 1x = (1500) (0.9666)x = $ 1449.90

2. You have 15000 Finnish marks. How much will you receive in Canadian dollars for this amount?

Method 1:The buying price for one Finnish mark is 0.2131.

15000 x 0.2131 = $3196.50

Method 2:Let x represent the amount of Canadian dollars you receive.

15000 Finnish marks = x Canadian dollars

1 0.2131 15000 x

= 1x = (15000) (0.2131)x = $ 3196.50

3. You buy 500 Pounds Starling.

500 x 2.4513 (selling rate) = $ 1225.65

You want to change 500 Pounds Sterling back to Canadian dollars (sell 500 Pounds Sterling).

500 x 2.2957 (buying rate) = $ 1147.85

The difference: $1225.65 - $1147.85 = $77.80

Custom Duties NAFTA (North American Free Trade Agreement)

- Trade agreement to import goods "duty free" (no tax)- Canada, United States, Mexico

GP (General Preferential)- Special lower rates for custom duties- China, India, many Latin American countries

MFN (Most Favoured Nation)- most other countries

Custom duties are calculated in Canadian dollars

• Israel and Chile: no custom duties due to a special agreement.

• Customs duties and excise taxes are calculated in Canadian dollars.

• Businesses and individuals that import items, must pay GST.

• When you purchase items from another country, you pay Customs duties and excise taxes (if any).

Personal Exemptions:

- if you travel outside Canada, you are allowed to bring a certain value of goods into Canada, without having to pay the regular duties.

- personal exemptions depend on the length of time you have been outside Canada.

Examples

1. The Cartier Jewellery Company imports 4000 francs worth of gold necklaces from France. How much will it cost them to bring the necklaces into Canada?

Step 1: Change 4000 francs to Canadian dollars4000 x 0.2384 (selling rate) = $ 953.60

Step 2: Custom duties (France is an MFN country)

$ 953.60 x 5.5% = $52.45

Step 3: Excise taxes$ 953.60 x 10% = $95.36

Step 4: GST7% x ($953.60 + $52.45 + $95.36) = 0.07 x 1101.41= $77.10

Step 5: Total cost$953.60 + $52.45 + $95.36 + $77.10 = $1178.51

Step 1: Change to Canadian dollars1 watch = 6000 x 0.0398 (selling rate) = $238.8025 watches = 25 x $238.80 = $ 5970.00

Step 2: Custom duties (Belgium is an MFN country)

$ 5970.00 x 5% = $298.50

Step 3: Excise taxes1 watch = $238.80 - $50.00 = $188.80$188.80 x 10% = $18.88

Step 4: GST7% x ($5970.00 + $298.50 + $472.00) = 0.07 x $6740.50= $471.84

Step 5: Total cost

$5970.00 + $298.50 + $472.00 + $471.84 = $7217.34

2. The Klocke Factory brings 25 watches priced at 6000 francs each from Belgium. What will it cost to bring these watches to Canada?

25 watches = $18.88 x 25 = $472.00

Assignment

Page: 15Assignment 1C

(due Tuesday)

Please, show your work!!!