Foreign Exchange
Senior 6 · Economics
Foreign Exchange
Lesson 1 of 4
25 min
Every working day the National Bank of Rwanda (BNR) publishes the average rate at which the Rwandan franc is trading. Its end-of-period rates for 30 June 2025 were:
| One unit of | Rwandan francs (Frw) |
|---|---|
| US dollar (USD) | 1,433.02 |
| Euro (EUR) | 1,679.50 |
| British pound (GBP) | 1,965.60 |
| Chinese yuan (CNY) | 200.01 |
| Japanese yen (JPY) | 9.94 |
Think: a trader in Kigali wants to import a machine priced at US$25,000. How many francs does she need? And why might that number be different next year?
Definition
Foreign exchange (forex): the currencies of other countries, and claims on them such as bank deposits, used to pay for international transactions.
Exchange rate: the price of one currency in terms of another.
Example: on 30 June 2025, US$1 = Frw 1,433.02 (BNR).
Definition
Direct quote: the price of one unit of foreign currency in home currency (Frw 1,433.02 per US dollar). Indirect quote: the price of one unit of home currency in foreign currency ( US dollars per franc).
Buying and selling rates: a bank or forex bureau buys a currency from customers at a lower rate than it sells it; the difference is the spread, its margin.
Cross rate: an exchange rate between two currencies worked out through a third, usually the US dollar or the home currency.
Worked example 1: conversions using the BNR's rates for 30 June 2025
(a) Dollars into francs. The machine costs US$25,000:
(b) Euros into francs. A tourist changes €500:
(c) Francs into dollars. A student abroad needs her tuition of Frw 4,000,000 in dollars:
(d) A cross rate. How many US dollars is €1 worth? Both currencies are priced in francs, so
Worked example
Worked example 2: buying and selling rates (illustrative)
A forex bureau buys dollars at Frw 1,420 and sells them at Frw 1,445. A trader sells US$1,000 to the bureau and later buys the same US$1,000 back.
The round trip costs her Frw 25,000. The spread as a percentage of the buying rate is
Foreign currency enters Rwanda whenever a foreigner pays a resident. The credits in the balance of payments (Unit 2) show the sources. In 2025 (BNR, US$ million):
| Source | US$ million | Share of current account receipts |
|---|---|---|
| Exports of goods | 2,449 | 55.1% |
| Exports of services (tourism, transport and others) | 1,125 | 25.3% |
| Secondary income: remittances (640), grants and other transfers | 842 | 18.9% |
| Primary income (interest and profits earned abroad) | 31 | 0.7% |
| Total current account receipts | 4,447 | 100% |
On top of these, foreign currency arrives through the capital account (project grants, US$294 million) and the financial account: foreign direct investment (US$595 million net in 2025) and loans to the government and firms.
Foreign currency leaves Rwanda to pay for imports of goods and services, interest and profits paid to foreigners, transfers abroad, repayments of loans, and residents' purchases of foreign assets.
In a free market the franc's price is set like any other price: by demand for and supply of foreign currency. In the market for US dollars in Rwanda, the demand for dollars comes from people who must pay foreigners, and the supply comes from people who have received dollars and want francs.
| Factor | Effect on the franc |
|---|---|
| Imports grow faster than exports | More demand for dollars: the franc depreciates |
| Higher world prices for Rwanda's exports; more tourists; more remittances | More supply of dollars: the franc appreciates |
| Inflation in Rwanda higher than in trading partners | Rwandan goods become dearer, exports fall and imports rise: depreciation |
| Higher interest rates in Rwanda than abroad | Foreign savers buy franc assets: appreciation |
| Higher interest rates in the United States | Money flows to dollar assets: the franc tends to depreciate |
| More FDI, loans and grants | More supply of dollars: appreciation |
| Speculation and expectations | If people expect the franc to fall, they buy dollars now, and it falls |
| Political stability and confidence | Confidence attracts inflows; instability causes capital flight |
| Central bank intervention | Selling dollars from reserves supports the franc (Lesson 3) |
Warning
"The exchange rate rose" is ambiguous. If the rate is quoted as francs per dollar, a rise from 1,300 to 1,430 means each dollar costs more francs: the franc has weakened. Always say which currency has gained or lost value.
Tip
Multiply or divide? Going from the currency in the quote's "per" (dollars) to the other one (francs): multiply by the rate. Going back: divide. Check that the answer makes sense: francs should always be the bigger number.
Important
Discuss. In 2025 more than half of Rwanda's current account receipts came from goods exports, and almost a fifth from transfers. Which of these sources of foreign exchange are most reliable from year to year, and which are most at risk? What does that mean for the stability of the franc?
Crash Course Economics, "Imports, Exports, and Exchange Rates" (episode 15, about 10 minutes). Watch for why a currency's value changes and who wins and loses when it falls. The examples are American; apply the reasoning to the franc.
Practice
Sources and credits
Written by Ganzaa: the diagram, the tables, the worked examples and the practice items. The forex bureau's rates in worked example 2 are illustrative.
