Possible get-rich-quick scheme... if there are no flaws (unlikely). XD

[_henwee]

I had this thought a while back regarding interest rates and floating exchange rates. I know that I have missed something (apart from the fact that the massive loan won't be approved LOL!). If not then it might actually become some sort of get-rich-quick scheme. XD

SO THE  QUESTION IS: What is the flaw in the following scenario?


1. Hypothetically, I borrow a vast amount of money from commbank, say 1000 trillion dollars (REMEMBER, I said hypothetically).

Results:
- RBA: "Loans have increased drastically, let's do the same to cash rates." (However, the RBA changes cash rates on the first Tuesday of each month, hence effects of interest rates aren't immediate.)


2. I use the money to purchase US dollars - say the rate was approx. AUD1 : USD1

Results:
- US dollar value: increases dramatically (huge increase in demand).
As you see in news, exchange rates changes daily-ish.


3. I use the USD to buy back AUD.

So the exchange rate might become AUD 1 : USD 0.1, even lower (maybe).
So I've got USD 1000 trillion dollars, which becomes 10000 trillion AUD.

exchange rate re-stabilises somewhat.


Let's have a discussion & some fun. =]

[schmalex]

In economics, there is something called the "no money on the table" principle. There's an economic parable about an old economist and a young economist. They go for a walk and see a hundred dollar bill on the ground. The young economist goes to pick it up and the old guy goes "No, don't bother, it's not real". The young one asks how he knows and the old economist says "If it were real, someone would have picked it up."

Moral of the story: If there were a way of easily getting rich quick, with no risks, someone else would have done it, removing the opportunity (kind of a weird idea to get your head around, since the idea suggest that SOMEBODY gets rich quick, it's just someone with impeccable timing.) Currency speculation is something that a lot of people try as a method of getting rich, but it's quite risky and any exchange service will charge quite a bit, so you will need quite a bit of money to be able to make this worth it. Also, although VCE economics teaches you that exchanges rates will go up or down in certain situations, there are so many factors affecting exchange rates, including currency speculation (what you've described), that you have no way of knowing for sure when exchange rates will go up or down.

[_henwee]

In economics, there is something called the "no money on the table" principle. There's an economic parable about an old economist and a young economist. They go for a walk and see a hundred dollar bill on the ground. The young economist goes to pick it up and the old guy goes "No, don't bother, it's not real". The young one asks how he knows and the old economist says "If it were real, someone would have picked it up."

Moral of the story: If there were a way of easily getting rich quick, with no risks, someone else would have done it, removing the opportunity (kind of a weird idea to get your head around, since the idea suggest that SOMEBODY gets rich quick, it's just someone with impeccable timing.) Currency speculation is something that a lot of people try as a method of getting rich, but it's quite risky and any exchange service will charge quite a bit, so you will need quite a bit of money to be able to make this worth it. Also, although VCE economics teaches you that exchanges rates will go up or down in certain situations, there are so many factors affecting exchange rates, including currency speculation (what you've described), that you have no way of knowing for sure when exchange rates will go up or down.

Yeah... I figured so. >.<"
Now i Feel like doing a Phd in Eco sometime in my life just to look into this shit. =]

[schmalex]

In economics, there is something called the "no money on the table" principle. There's an economic parable about an old economist and a young economist. They go for a walk and see a hundred dollar bill on the ground. The young economist goes to pick it up and the old guy goes "No, don't bother, it's not real". The young one asks how he knows and the old economist says "If it were real, someone would have picked it up."

Moral of the story: If there were a way of easily getting rich quick, with no risks, someone else would have done it, removing the opportunity (kind of a weird idea to get your head around, since the idea suggest that SOMEBODY gets rich quick, it's just someone with impeccable timing.) Currency speculation is something that a lot of people try as a method of getting rich, but it's quite risky and any exchange service will charge quite a bit, so you will need quite a bit of money to be able to make this worth it. Also, although VCE economics teaches you that exchanges rates will go up or down in certain situations, there are so many factors affecting exchange rates, including currency speculation (what you've described), that you have no way of knowing for sure when exchange rates will go up or down.

Yeah... I figured so. >.<"
Now i Feel like doing a Phd in Eco sometime in my life just to look into this shit. =]

It's interesting to think about isn't it? Some things in economics just make you think for ages.

[chrisjb]

Assuming that people are robots then there's no reason why it shouldn't work.

[mba]

It doesn't cost that much to trade currencies, you can do so through buying/sellling Futures (which can be very risky if you don't know what you doing) through many FX providers such as IG Markets, CMC etc.

[steve030]

1. The bank would deny you the money, as well, no ssecurities lol
2. You better hope the government doesn't intervene


Nice idea though