Many countries have Foreign Exchange (FX) stores for currency exchange. Currency exchange could be offered in stores or financial institutions in cities. However, not all have the same exchange rates. We want to know whether there exists an inefficient local market for local currency exchange desks.
This analysis attempts to determine whether profitability exists for arbitraging local currency exchange businesses and see how it fairs with the Market Efficiency Theory.
A theory in economics where asset prices are based on available information. Less efficient markets in theory equate to more arbitrage opportunities and more efficient markets make it harder to arbitrage.
The mainstream adoption of the internet has resulted in a new way of doing business. This became a danger to physical stores and institutions that were fully dependent on customers entering into a store to purchase goods and services.
Based on my interpretation of the efficient market theory, the decline in foot traffic to brick-and-mortar stores results in less "liquidity" for physical stores and introduced arbitrage.
Flipping items on Facebook Marketplace or Ebay from thrift stores, retail arbitrage, and so on have become also a new way for people to make some extra money. By taking advantage of physical stores trying to offload inventory due to lack of customers, people have been building thriving businesses from these deficiencies.
The goal of this project is to show opportunities due to less efficient market conditions that brick-and-mortar stores encounter. Foreign exchange is a very good example as you can easily exchange money online now but there is also a strong presence of these shops in cities.
We will be doing our experiment and analysis using currency exchange as the data is easier to access than prices for certain products over time.
This project does not encourage arbitrage using retail currency exchange desks. There are AML and regulations around this and this is only to show the presence of an inefficient sub-market. In other words, do not actually try this in real life. FX shops will also be anonymous and data sources stripped of names.
Note: For legal reasons, this project is used only for educational purposes and is not designed for actual use. Please do your own due diligence and research before engaging in the FX market.