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Unformatted text preview: • Differences mean that there are riskless profits lying around • In today’s markets, equalization occurs very, very quickly indeed! • Miniscule spreads may remain (less than 0.1%), due to transaction costs. • Cross Rates and Vehicle Currencies • The vast majority of currency pairs are exchanged through a third currency. • This is because some foreign exchange transactions are relatively rare, making it more difficult to exchange currency directly. • When a third currency is used in these types of transactions, it is known as a vehicle currency. • As of April 2007, the most common vehicle currency was the U.S. dollar – used in 86% of all foreign exchange transactions. • The euro, Japanese yen, and British pound are also used as vehicle currencies....
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- Spring '10
- Exchange Rate, Foreign exchange market, United States dollar