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Lost money in conversion


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#1 bkcarp

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Posted 22 April 2003 - 09:00 PM

Yesterday I was testing out the multi-currency conversions and I converted $7,150.33 to Canadian Dollars and then right back to US Dollars. After the conversion it reported my us dollars as only being worth 6,832.17. So basically I lost something like $300 in a 20 second time span. Is this how this system is supposed to work? Why would any one use this system if they loose a good part of their money converting it. I am currently e-mailing paypal to see what the deal is, but any insight would be very helpfull.

Thanks,
Brad

#2 paypal_pb

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Posted 23 April 2003 - 11:01 AM

Foreign exchange rates always have a slight margin built in to account for risk. No foreign exchanger would give you the same amount back after a round-trip like that.

Patrick Breitenbach
PayPal, Inc.
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#3 iaparrot

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Posted 16 June 2003 - 01:53 PM

Well how much "margin" are we talking about here? Maybe I'm in the wrong business...

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#4 ron

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Posted 16 June 2003 - 02:37 PM

If you monitor international monitary markets, it is basically the difference between the bid and ask price. This is because (I am guessing) that PayPal does not have an active interface into the financial markets (a broker acting for them, and on their behalf - which costs some money). What this means is that they rely on that "bid" and "ask" price for their conversion.

BUT, with just a little larceny, you can make a great deal of money in foreign exchange. Here is how it works...

If you only quote the "bid" price of the receiving country, you can make up the difference (essentially) between that bid and asked price in the world market. Think about that for a bit.

I have $100 to send to France, but France only offers 99.50 (their bid on that money to convert into their currency). That's 0.5% discount (loss) in the transaction. NOW, let's send that money bacdk to the US. BUT, N O W, it is only worth 99.50. So, in the US the "general" (you ain't a bank or large trader) discount is the same 0.5%, so they bid only 99.0025 on the transfer. So I just lost $1 on the turn-around. This is what is happening.

If you move a minimum of 1 billion at a time you do not see this happening. It happens when a "small" mover gets into the market and attempts to "guesstimate" the transaction, or rely on a single bidder (and the "offer" to "buy" - their "bid") for their conversion.

PayPal is not in the business of international banking. They rely on some "bid" for their conversion, is my guess - you see this even at your local bank where they do the samne thing - - UNLESS you are moving some serious money!

Conversion costs money - you have to PAY those doing it for you, else they would NOT do it for you. You lose a little each way - the cost of doing business. I don't think PayPal is making any money on this - but the brokers are! It's what they charge for the convenience of buying stuff in different currency markets, huh?

Sorry - ain't been into international finance is a bit. Got carried away. Shall contain myself in future.

Ron.




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