Friday, July 13, 2007

How to travel for free: Quick arbitrage opportunity

Today I am travelling abroad and I will be away until next week, so please excuse me for the lack of articles.

While planning for my trip I have noticed a foreign currency exchange (Forex) arbitrage opportunity. I have checked exchange services in both my home town and my destination, to exchange my home currency into my destination currency, but the rates were to not very promising. It would be at least 8% more expensive to exchange using those services than interbank rate. (Foreign currency is valued at 8% higher price than interbank rate)

Most people would stop there and take that loss, however that can be converted into profit. I consulted my bank and they have ATM machines where I’m going, and their fee for the service is a $6 flat fee, and their rate is interbank rate.

I am going to withdraw the money needed for my holidays from an ATM at my destination and use it in my holidays, when I am about to come home I will withdraw all my remaining checking account balance, use an exchange service to exchange it to my local currency again and then deposit back into my bank account.

In summary: ATM withdrawal at Interbank rate + exchange it back to my local currency using a rate that is 8% better (8% more value) + deposit into my bank account. My profit will be 8% - $6 (fee).

If I had a fat enough balance I could travel for free doing that.