FROM EUROs to PESOS VS. USD to PESOS

tish

New member
Mar 10, 2007
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Hi

Does anybody know whether you end up with more pesos if you exchange from Euros to Pesos or from USD Pesos?

Thx

Tish
 
Feb 7, 2007
8,005
625
113
Hi

Does anybody know whether you end up with more pesos if you exchange from Euros to Pesos or from USD Pesos?

Thx

Tish

You will get more pesos out of Euro than out of US Dollar.

Now, whether you will get more more pesos from Euro converting to Dollar (in Europe) converting to Pesos (in DR) that's a question.

The buy-sell spread on Dollar is less than the spread on Euro, meaning there is less profit for exchnage houses on Dollars than on Euros bought/sold, indicating that the Dollar-Peso exchange rate may be more competitive than the Euro-Pesos rate, as compared between the exchange house rate and the spot market rate.

Now, if we are talking about the spot rates, any spot rate where opportunity exists in arbitrage between various currency pairs and using cross-currency exchnage on the market, such arbitrage opportunity will be exploited until the market rates based on demand and offer are in equilibrum and the arbitrage opportunity no longer exists. What this wants to say is that if Euro to Dollar to Peso is better than Euro to Peso direct, such opportuny will be exploited using demand and offer market forces until the buy-sell rate for Euro to Dollar to Peso is technically same as Euro to Peso direct. These opportunities exist because hundreds of billions of dollars are made yearly in currency trades, but these arbitrage opportunities (spread spot differences) are short-lived.

Now said that, spot rate reality check

1 USD = 1.33269 EUR
1 USD = 32.505 DOP
1 EUR = 43.309 DOP

USD to DOP vs EUR to DOP
43.309 / 32.505 = 1.33238 which is less than USD.EUR rate, indicating arbitrage opportunity in cross currency pairs.
Now an opportunity, albeit small, exist to change Euros to Dollars to Pesos, where 100 EURO sold directly would nett 4330.9 Pesos. The same 100 Euro sold into Dollars and then into Pesos would nett 4331.9 Pesos. This opportunity is eventually a short-lived one, the Dollar-Peso rate would adjust, such as to equalize the exchange rate with Euro to Peso direct.

These are based on live, mid-market rates as of 8.30 pm.

Now having said that, you are almost never better off exchanging among the various curreny pairs, because of the spreads the exchange house/broker has between the buy/sell rates.

And NOW, HAVING SAID ALL THAT, the real-life check.
Suppose you exchange 100 EURO in a bank in Europe at a rate of 1.3, you would get 130 dollars, sold in DR at 32.50 would nett you 4225 pesos.
Same 100 Euro sold in DR, at 42.50 would net you 4250 pesos. Considering today's exchnage rates at caribe Express. Now, how is it possible that in the spot rate example it's better to change Euro to Dollars to Pesos, but in real life example, is better to change Euros to Pesos directly? Because you are loosing money on the exchange between various currency pairs through the spread on buy/sell rates the exchnage houses/brokers have.
if a mid-market rate is 1.33269 for a Euro to Dollar, the exchange houses sell you Dollars at 1.36 and buy at 1.30, making approximately 5% on the spread (they are BUYING form you EUROS for Dollars, thus a "buy" rate).

SO, to sum up, IT USUALLY DOESN'T PAY OFF to exchange between various currency pairs, not on the level of retail banks/exchnage houses.
 

tish

New member
Mar 10, 2007
242
8
0
Thanks Rubio,

Very detailed I must say. Do you work at the Bureau Exchange by any chance?

I guess I should keep an eye out for the exchange rate nearer the time when buying pesos with euros and stay away from exchange rates between various currency pairs.

Tish