Q&A: (Adam wanted) Forex Question?

3 Responses to “Q&A: (Adam wanted) Forex Question?”

1. 

   Adam 28. Nov, 2011 at 9:04 pm #

   Thanks E for doing as per my request, and I agree with above comment , Its goes above my head like a plane. I am just too beginer. LOL But I will try to learn those and it your question will help me. Thanks for your time.
2. 

   Alexander Collins 28. Nov, 2011 at 10:03 pm #

   Adam, if you are beginner how can you answer Forex questions? You can mislead some newcomers.
3. 

   PrivateBanker 28. Nov, 2011 at 10:34 pm #

   First you must calculate the implied GBP:euro bid-ask spread “offered” at Amer “A” bank. (Will use E for euro)
   GBP:E bid = GBP:$ bid / E:$ ask = 1.7950 / 1.2050 = 1.48963 GBP:E ask = GBP:$ ask / E:$ bid = 1.80 / 1.20 = 1.50 implied A’s GBP:E bid-ask spread : 1.48963 – 1.50
   Next: compare ^ to British Bank “B”‘s spread of GBP:E 1.5050 – 1.5070
   You’ll see that you can make a proift by coordinating an effective “Buy” GBPs at A’s Ask, and sell GBPs at B’s bid to receive a profit in Euros. As follows…

   Sell enough Euros to A to produce the $ 1.80 you need to buy one GBP from A.
   Therefore at $ 1.20 per Euro at A, to calc $ 1.80′s worth of Euros you need to sell 1.8 / 1.2 = 1.5 Euros
   You’ve now sold 1.5 euros and received $ 1.80
   Use the $ 1.80 to buy one GBP at Bank A
   now sell the one GBP to Bank B and receive 1.5050 euros
   use this money to cover (“repay”) the 1.5 euros you “sold” originally
   you thus net 0.0050 euros per “single” transaction

   This is a fine example of a riskless profit in triangular currency arbitrage. Not much profit for this “single” transaction, but throw a lot of money at it and you’ll see where currency traders can make a lot of riskless profit.

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