Comments on: Floating (Flying) Exchange Rate

By: Ned

Ned — Mon, 07 Jun 2004 01:51:24 +0000

I just need to get a little carry-on drinks cart for myself. Once I buy out most of their supply, I can travel along right behind them undercutting their prices. I don’t think they’ll mind.

By: Kris

Kris — Mon, 07 Jun 2004 01:18:43 +0000

Siegel’s paradox aside, perhaps you are also ignoring the fact that its a one-sided market.

Meaning you are always buying cocktails/beer
and the host/hostess is always taking your euros/dollars. So there is no way for you to enforce arbitrage. Since you can’t make round trip trades. :)

By: Randy McCauley

Randy McCauley — Sat, 29 Mar 2003 12:42:12 +0000

Danger, Will Robinson, Dandger! You have no idea the stress I’ve been under. Thank you for clearing that up. Ciao.

By: Ned

Ned — Thu, 27 Mar 2003 04:26:10 +0000

Wait a second… I have to confess that the cost I described was for cocktails. Beer and wine are still free. I had a few free cans of the Molson. Maybe that’s why I forgot.

By: Randy McCauley

Randy McCauley — Wed, 26 Mar 2003 15:19:15 +0000

Mon Dieu! We are paying for beer on international flights now? The end is truely at hand. Repent.

By: Nabeel

Nabeel — Wed, 26 Mar 2003 05:30:44 +0000

This link has a much better equation that the expected value one I previously posted:

http://mathworld.wolfram.com/SiegelsParadox.html

These equations also provide a more intuitive feel for how the exchange rate magic in my upcoming example comes about.

By: Nabeel

Nabeel — Wed, 26 Mar 2003 05:15:29 +0000

Interesting you mention this. There’s a classic idea seen in finance (probably other areas, too) known as “Siegel’s Paradox”. It has to do with the asymmetric appearance of exchange rates and the seemingly magical effect this has on buying power.

The abstract math people like to think of Siegel’s Paradox by saying something like E[1/(exchange rate)] > 1/E[exchange rate]. I never like that, though. Instead, I preferred thinking about how much French and Californian wine Siegel’s Paradox can buy you. When I get a chance, I’ll write more on this. It’s a neat example. Maybe this will be my next glog! ;)