Sep, 24, 2012 By Vikram Murarka 0 comments

Here's another very important MS Excel tip, one that I got from one of our clients. It has made my life so much simpler. Thank you, Krishnan!

Let us say there is a company that exported goods worth $ 5 million and received payment at a Dollar-Rupee rate of 45.45 on 17-Aug-11. It then exported goods worth $ 1 million and received payment at a rate of 56.00 on 23-May-12.

What is the average rate at which the exports have taken place? You will be surprised at the number of people who reply saying 50.7250, the simple average of 45.60 and 56.00. However, as you know, the correct answer is actually 47.21, since the larger amount of $ 5 million was exported at the lower rate of 45.45 in August 2011, as compared to the smaller amount of $ 1 million which was exported at 56.00 in May 2012. The rate of 47.21, the weighted average rate calculated as (45.45 x 5 mln + 56.00 x 1 mln)/ 6 mln.

Not only do the export/ imports/ forward contract/ option transactions take place at different exchange rates, the transaction amounts are also always different. ** Therefore, there is always a need to calculate the weighted average rate at which forex transactions have taken place.** Since the transaction amounts are different, calculating simple average is simply wrong.

Thankfully, while a few people do erroneously make do with a simple average, most people calculate the Weighted Average Exchange Rate. Unfortunately, the way most people (I was one of them) do the calculation is quite cumbersome.

The way I used to calculate weighted average earlier in Excel is as follows:

Calculate the Rupee equivalent of the Dollar amount

Sum the Dollar amounts

Sum the Rupee amounts

Divide the sum of Rupee amounts by the sum of Dollar amounts

Note the SUMPRODUCT function in the formula bar. The weighted average is now calculated as SUMPRODUCT(range with Dollar amounts, range with Export rates)/sum of Dollar amounts.

Much simpler, isn't it? Thanks are due to Krishnan, my client at Marico Ltd, and to MS Excel. I hope this function will be as useful to you as it is to me!

Dollar Rupee Forecast. Get a Free Trial

13Jan17: US Yield Spread (30-10 & 30-5) near 2015 low. Maybe 30Yr yield (2.98%) can rise. https://t.co/74y1vlG6cr https://t.co/74y1vlG6cr

Examination of data shows that India Exports do not rise with Rupee weakness. . https://t.co/qUXM9asX8f https://t.co/qUXM9asX8f

#DAX taking support at 11400? Bullish momentum looks strong towards 11800.. https://t.co/f52lQxA7Bo https://t.co/f52lQxA7Bo

#Gold 1130...Heading towards 1100-1050 and maybe lower to 1000 in the coming weeks. Could... https://t.co/GDHVh90HXT https://t.co/GDHVh90HXT

Copyright © 2016 Kshitij, All Rights Reserved

- Kshitij Consultancy Services
- Email: info@kshitij.com
- Ph: 00-91-33-24892010 / 24892012