# currency arbitrage...

I just dont get it!!! can somebody please give me a dummy proof explanation… thank you

please give me an example that you want me to explain

Thank You Suppose the GBP trades for CHF 2.20279 in Zurich and USD 1.62699 in London. The USD trades for CHF 1.2755 in Zurich. Is there an arbitrage opportunity available for a currency trader?

okay here is what i do, first i write any rates no matter how they are given in the mathmaticly correct way. a/b, you might not see it now, but one day you will realise it makes things much easier 2.20279 CHF/GBP 1.62699 USD/GBP 1.2755 CHF/USD now it is kind of hard to see it here because the “/” sign should be a flat line, but no such charachter exists in ASCII code lol…but if you look at the last two rater you can see that you can cancel out the USD from both and end up with CHF/GBP by simply multiplying them just put them next to each other and see so, 1.62699*1.2755=2.07522 which is clearly not = to 2.20279 so there is arbitrage someone out there, as indicated by the exchange rates you gave me is willing to pay 2.20279 CHF for each GBP but by jumping from currency to another, i can end up buying 1 GBO for 2.07522 and selling it to him for 2.20279, instant profit to do that, i would start with 2.07522 CHF, i would convert them to 1.626 USD then i would convert that to 1 GBP and i would sell it to some fool for 2.20 CHF… ---------------------------------------------------------------------- to sum it up, if you are looking for some shorcut, there is not, or at least i am not the guy to teach it to you but all this is, math and logic and arbitrage… with practice, you WILL get it just look at the rates and start thinking, how can I make instant money, it would get more complicated when you involve bids and asks, but the concept is the same, try to understand this, and when you do maybe we try one with bid and ask …

ok thanks let me see what I can do

i probably should have gave you the example from the perspective of a USD investor, thats just how CFAI mostly asks for it should not affect your understanding much, i am here for another hour, let me know if i can help