|Bank Buys||Bank Sells|
|IMT/TT||Travel Card/ |
|Notes||IMT/TT||Travel Card/ |
the bank want's to make money right, so as everyone knows it should "buy low, sell high" but look what we have here: the bank sells at 1.0341 and buys at 1.0991 - arbitrage opportunity!
buy and sell are in the correct place though, what is weird is that the prices are listed in the currency you are purchasing! this kinda makes sense right? one Australiadn dollar buys 1.0341 US dollars, and then when we need to buy back australian dollars it takes 1.0991 us dollars to repurchase our 1 australian dollar; that is, we need more US cents than we received in the initial transaction, so theres the profit the bank needs (if exchange rate bid/ask spreads ever confuse you, just remember you the customer always get shafted =)
but why is this so counter-intuitive. well let me show you an example that will make this clear: the problem is that the thing you are buying is not priced in your currency (like every other good) but in terms of the thing you are purchasing. if shops sold jeans like the banks sold currency this is what a price tag would like: (lets say jeans cost $150)
Item Shop Sells
weird no? but what this would say is that 1 AUD buys 0.00667 of a pair of jeans, necessitating $150 for the whole pair of jeans.
i guess the currency board makes sense because its the one transaction where you have a certain amount of cash and you just want the most of the other currency, whereas when you buy jeans you want one pair of jeans for the lowest price. currency transactions are the inverse of every other transaction in adulthood: but they are like when as a kid you went to the school canteen with 57 cents and said, how much can i get for this?