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how to win on currencies? watch

    • Thread Starter

    I was thinking about this today. I have no experience of finance, as you'll probably guess.

    If your currency is extremely close to another currency, say for the sake of argument they are equal in value, and you know nothing about economics or where each country's currency is going, should you not put all your money into the other currency, put it in a high interest account in the other country, then transfer back when they change values?

    My argument: say your currency is equal to another to begin with, and you don't know anything else. Then for you there is equal chance of the exchange rate going to 1.1 from your currency to the other as there is of the exchange rate going to 1.1 from the other currency to your currency.

    Assume equal interest rate bank accounts in the other country, so that at the point of exchange back, you have the same "amount" of money in terms of the figure, ignoring the currency, as you would've in the British currency.

    In the first case, you transfer your money back at a rate of 1/1.1 = 10/11, and lose 1/11 of the money you originally held in your currency.

    In the second, you gain 1/10 of the money you originally held in your currency.

    So the expected gain would be 1/10-1/11 = (11-10)/110 = 1/110 of your original money.

    Is this expected gain simply too tiny to bother with? Is my example too particular? if it works, can it be extended to general currencies?


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