[ELI5] Why is the exchange rate between two currencies not the same going both ways? Like why is the exchange rate of USD to GBP different from GBP to USD
In: Economics
It is the same otherwise it could be arbitraged. The spread you’d be seeing is what the buyer/seller of those currencies is charging i.e. when you convert your GBP to USD, the converter takes a fee.
Currently my screen is saying 1 GBP buys 1.2325 USD and the other way is 0.8112. Taking the inverse of 0.8112 you get 1.2327 – really close with the cost of exchanging being roughly 2 basis points.
Another thing to note is that there is no formal market structure for FX as there is with equities and some commodities. FX deals are done on a party to party basis and are a bit more opaque.
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