Does this scenario seem plausible? Finance Currency Hedging Technique

[thereds]

Take a look at the following scenario and please tell me if its missing something:

Currency of Bahrain - Dinar (1 Bahraini Dinar = 1000 fils)

Dinar/Great Britain Pound rate - 710 fils = 1 GBP
Dinar/US$ rate (pegged rate) - .375fils = 1US$
GBP/US$ rate - 1GPB = ~1.9US$

Say I have a million pounds:
1. Convert to USD to get USD 1,900,000
2. Convert USD to Bahraini Dinar (1.9M * .378) = BD 718,200
3. Take the BD 710,000 out of the BD 718,200 and convert to 1M pounds and start cycle again.

This assumes (a big assumption at that) that I can closely match buy/sell rates but say that was also possible, is it not possible to make a significant sum of money this way or am I missing something?

 

[Koing]

Well you will have problems in getting the vast sum of money.

I have a friend who knows of a place in London where he can get £10k ~ $17k exchanged with no FEE. But I'm pretty dam sure that he can no way get much more then that with no fee!

Koing

 

[thereds]

Originally posted by: Koing
Well you will have problems in getting the vast sum of money.

I have a friend who knows of a place in London where he can get £10k ~ $17k exchanged with no FEE. But I'm pretty dam sure that he can no way get much more then that with no fee!

Koing

Oh regarding the fee...what about those non-commission bureau de changes?

 

[bcterps]

Yes, in theory it can work, I believe it's called arbitrage. However, in reality it is much harder to play the currency market, the rates are so difficult to predict and you'd have to change very large amounts of money to get the posted rates.

 

[thereds]

Originally posted by: benchiu
Yes, in theory it can work, I believe it's called arbitrage. However, in reality it is much harder to play the currency market, the rates are so difficult to predict and you'd have to change very large amounts of money to get the posted rates.

Yes, it is arbitrage. But the beauty of the thing is I'm using the pegged rate as a process to earn my profits. So as long as the dollar falls against the pound, which it has been doing for like 6 months now, I'll continue making a sh|t load of money i.e. if I had the million pounds to begin with

 

[AvesPKS]

I have a friend who's a trader, and the company he works for trades currency. It seems suspect just because it seems too good to be true, and I would assume that if this were plausible, they would be doing this already.

 

[thereds]

Originally posted by: AvesPKS
I have a friend who's a trader, and the company he works for trades currency. It seems suspect just because it seems too good to be true, and I would assume that if this were plausible, they would be doing this already.

You never know.

 

[Koing]

Originally posted by: thereds

Originally posted by: Koing
Well you will have problems in getting the vast sum of money.

I have a friend who knows of a place in London where he can get £10k ~ $17k exchanged with no FEE. But I'm pretty dam sure that he can no way get much more then that with no fee!

Koing

Oh regarding the fee...what about those non-commission bureau de changes?

I'd be suprised if they had £10k Dinar in at day. Most are pretty small. The banks always charge unless your a student and have a account with them. But then bank rates are usually lower to compensate.

Be freakishly good if you could hook it.

Well I had a friend change £ to $ worth $10k when it was 1.78 I think.

Koing

 

[theNEOone]

well i just did the conversion, and 1,000,000 GBP = 1,892,929.47 USD = 713,623.234 BHD = 999,864.368 GBP

you'd actually be losing money, not taking into consideration transaction costs. http://www.xe.com/ucc/


=|

 

[bcterps]

Originally posted by: thereds

Originally posted by: benchiu Yes, in theory it can work, I believe it's called arbitrage. However, in reality it is much harder to play the currency market, the rates are so difficult to predict and you'd have to change very large amounts of money to get the posted rates.

Yes, it is arbitrage. But the beauty of the thing is I'm using the pegged rate as a process to earn my profits. So as long as the dollar falls against the pound, which it has been doing for like 6 months now, I'll continue making a sh|t load of money i.e. if I had the million pounds to begin with

However that's all in theory. Your chances of actually being able to exchange money for those rates without high transaction costs are pretty low.

 

[Kenazo]

Originally posted by: theNEOone
well i just did the conversion, and 1,000,000 GBP = 1,892,929.47 USD = 713,623.234 BHD = 999,864.368 GBP

you'd actually be losing money, not taking into consideration transaction costs. http://www.xe.com/ucc/


=|

Then run it the other way. think a little.

 

[TGregg]

Nope. The markets are efficient enough (and automated enough) that a simple exploit like that does not exist unless the transaction costs are way too high or there is some other problem. There are millions of people involved in this, folks who do this every day for a living. They wouldn't miss this.
It would be interesting to hear what the problem is tho.

 

[theNEOone]

Originally posted by: Kenazo

Originally posted by: theNEOone
well i just did the conversion, and 1,000,000 GBP = 1,892,929.47 USD = 713,623.234 BHD = 999,864.368 GBP

you'd actually be losing money, not taking into consideration transaction costs. http://www.xe.com/ucc/


=|

Then run it the other way. think a little.

yes, i must be stupid

how about you run it the other way and see what you get. anyway, the point is that there are mechanisms built into exchange rates so this kind of thing doesn't happen - well at least not in a predictable way. it's impossible to sit here and concoct a master scheme to get rich - if it were possible, why aren't other people doing it? it may even be possible to show a profit on paper, but you won't be able to find the volume you're looking for.


=|

 

[Kenazo]

just ribbing.

I managed to make $1.493 Euros by going 100,000euros -> Packistani Lira's -> US$ -> CDN$ -> Euro's!

now if only I had $1billion to try this with.


On another note, you can make money doing this in places where there is a lot of inter-country travel. Like Florida. Some businessess will give Canadians a better exchange rate than the banks will. Buy canadian at the bank then go the business and buy whatever you want there. Return it.

I live in Canada and some businessess near where I live will give american's $1.40 on the dollar, even though the actual rate is closer to $1.3 right now, saving you 10% if you just go the bank first and buy US$