I wondered if it would be beneficial to exchange a currency through one or more "in-between" currencies.

For example: instead of trading Russian Ruble (RUB) to Euro's (EUR), one would trade from RUB to US Dollars (USD) and then to EUR.

Neglecting exchange costs, I expected that there would be some difference in the resulting amount of money.

I tried this out in an Excel sheet, using data from Floatrates.

What I found is that the resulting amount of money stayed the same, regardless of which currency I went through.

How can this be? Is my method of calculating the resulting amount of money perhaps incorrect?

  • 2
    $\begingroup$ It seems to me that the reason would be to prevent exactly what you’re suggesting doing - essentially selling currency. But I would like to see an answer to this question because the Who and How of it is potentially very interesting. $\endgroup$
    – MAA
    Jan 23, 2018 at 12:54
  • $\begingroup$ I'd note that you are looking at indicative (mid or last traded) rates. Real world rates differ depending on whether you are buying or selling, and how much (e.g. your bank will quote you maybe a 5% spread and a trader in the hundreds of millions will see maybe a 0.01% spread). $\endgroup$
    – Rich
    Jan 24, 2018 at 2:11
  • $\begingroup$ Note that "fixed" is the wrong word to use here. A "fixed exchange rate" means that the central bank will take significant effort to make sure that the exchange rate does not change from one day (or year) to the next. $\endgroup$
    – nathanwww
    Apr 4, 2018 at 20:09

3 Answers 3


International currency markets are highly liquid, with near-instant transfer of knowledge between trading centres.

This means that any arbitrage opportunities tend to get resolved within seconds.

To put it simply, the thing you tried to do, of trading two currencies via a third, is something that lots of real-world currency traders, and their automatic trading programs, are trying to do all the time; so any discrepancies are quickly mopped up by the market.

  • $\begingroup$ "Mopped up by the market"... Does that mean it's purely supply and demand of the automatic traders? There's no institutional influence on this? Do you maybe have a reference where I can learn more about this? $\endgroup$ Jan 23, 2018 at 15:37
  • 1
    $\begingroup$ @SaaruLindestøkke Of course there is institutional influence. The value of USD may drop for very real economic reasons, for example, and while it is dropping against all currencies and commodities, automatic traders and market actors are always working to profit from just the thing you are talking about - trading through currencies whose relative valuation of a moving commodity are either leading or lagging others. $\endgroup$
    – J...
    Jan 23, 2018 at 16:18
  • 2
    $\begingroup$ @SaaruLindestøkke Really, this is like buying eggs in one grocery store to try to sell them at a higher price down the street in another, except in the FOREX market you have enormous amounts of money and millions of traders all racing to try to do this at the same time, but instead of having to run up the street they just have to have a computer program push a virtual button. The result is that at any given time these price differentials between currencies almost entirely don't exist, or don't exist for anything more than the briefest (like sub-second) of windows of time. $\endgroup$
    – J...
    Jan 23, 2018 at 16:21
  • 1
    $\begingroup$ There are institutional differences depending if currency's country has any capital control laws. Allow me to use crypto-currency as an example (because of lower liquidity, the effect is amplified) coinmarketcap.com/currencies/ethereum/#markets. As you can see ETH->KRW is 12% more expensive than ETH->USD because Korea limits the amount of KRW that residents can exchange (it's easier to buy KRW than to sell them). $\endgroup$
    – csiz
    Jan 23, 2018 at 16:25

What you're describing doesn't work on the open market, where any arbitrage opportunity is scooped up within milliseconds by thousands of trading algorithms. That's because currency markets are perhaps the most liquid market of all markets - primarily traded using derivatives anyway, and able to reconcile nearly instantly. Supply and demand are not very relevant to the individual trade or to the pair of currencies; any factor affecting supply or demand would affect both transactions equally.

However, what you're describing sometimes is possible in person, such as when you're going to a foreign country. Physical currency supply and demand becomes relevant then.

For example, if you're going from the US to Russia on a holiday. In Russia, not very many people go from Russia to the US, compared to the proportion who go from Russia to the EU, so the demand for USD is lower than the demand for EUR. In the US, on the other hand, EUR is in lower demand, and fairly high supply with many tourists over here, so it may be reasonably cheap to buy EUR here. You easily could have a situation where it's advantageous to buy EUR here and take them to Russia and then exchange those for Rubles.

Usually, that's ultimately inefficient because of exchange costs (in particular, in person exchange costs typically are very high comparatively). But sometimes, particularly when your own bank is willing to give fairly good exchange rates and/or low transaction costs due to your being a member, it can be slightly advantageous (or if you have accounts in multiple currencies).

  • $\begingroup$ Note: the supply/demand constraints in the question are made up, though intended to seem realistic, and I'm not claiming they're accurate representations of actual price relationships. $\endgroup$
    – Joe
    Jan 23, 2018 at 19:56

Exchange rates are NOT fix. It is volatile to the supply-demands during the trade. The stability is artificially buffered by various country policy maker stack of cache for each currency they hold.

Unless particular currency are under heavy trade restriction, otherwise you will never be able to gain by introduce a "proxy currency". Money trades such as banks and money changer act as some sort of agent that connect buyer and seller, even though they keep a cache of currency for payout, they usually don't trade volatile currency, or slap an expensive trade fees to curb the risks.

Nevertheless, in real work, a huge currency exchange can cheat their prominent customer during the trades by sneakily contact their counterpart trader, to jack up the agreeable rates to profit more from the marginal trade. But it is not easy as the world market will detect the fluctuation and supply will rush in.

While in other extreme case is about international speculator that throw billions on short selling/future trade the currency(like commodities). I don't think OP is within that domain to perform such stunt.


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