To determine the exchange rate for line 7 on Schedule H, filers must use the exchange rate in effect on the last day of the tax year for converting foreign currency to U.S. dollars. The exchange rate can be obtained from various sources, including the Federal Reserve, the Internal Revenue Service (IRS), or a reliable financial institution. It is essential for filers to document the source of the exchange rate and retain it for their records, as they may be required to provide it to the IRS upon request.