Myth - You lose money when you convert

One of the biggest misnomers out there is you "lose money when you exchange Canadian loonies into US dollars." Nothing could be further from the truth. The thinking goes if you lose money during currency exchange, there must be ways of making money during currency exchange too! An example will illustrate. On one day, the following exchange rates were observed:

$1 Canadian = $0.753 US = $5.91 Hong Kong = $25.41 Taiwan = $135.82 Guyana

The first thing to notice is that all of these countries use the "dollar" as the name for their currency, and therein lies the problem. Because the currency has the same name, people assume it has the same value. It does not. This is because they are different currencies, from different countries with a different value associated with each one. A Polish zloty is different from a US dollar, which is different from the Euro, which is different from an Italian lira, which is different from a Canadian loonie. Different currencies from different countries (even if they have the same name) have different values ascribed to them by the supply and demand of that country's currency in the world.

To further illustrate the point, suppose you exchange one Canadian loonie into one US dollar. According to our example above, you will receive U$0.753. People believe since they are getting 0.247 less, they have "lost" money. If that argument holds true, then take your Canadian dollar and exchange it into Guyana dollars and you will "gain" $134.82! If you exchange C$10,000, you could become a Guyana millionaire! But we all know a Guyana millionaire is a lot different than a Canadian millionaire, which is different from an American millionaire. Consider as well that if you were to convert U$0.753 back into Canadian loonies the very next day, how much would you receive? You're right, pretty much $1 Canadian so, where did you lose money? And where did you gain money?