equitable matrix for money exchange
This example shows how equitable matrices arise in money exchange.Consider currencies , where stays for somename like “dollar”, “euro”, “pound”, etc. Denote the exchange ratebetween currencies and as , i.e.
(1) |
We will call an exchange rates matrix.Suppose, is anequitable matrix, i.e.
(2) |
Let us discuss consequences of this. First of all, there is no loss when exchangingbetween two currencies: if one exchanges units of to and then back to , one will have again units. Indeed,
and desired conjecture follows from the fact that
(3) |
which can be proven by putting in (2) and using diagonal property(, for all ).But equitable property (2) suggests in fact more than just (3), i.e. morethan just no loss by changing from one currency to another and back. For illustration consideran example.
Example 1.
Let us take three currencies , , with the following exchange rates
The above relations define in the exchange rates matrix .Let us define other elements by (3). This gives us
Now assume one has 100 units and wants to exchange them to . If one does thisdirectly, one will obtain 300 units. But if one exchanges first to and thento , one will obtain 400 units.
For an equitable exchange rates matrix the above described situation is impossible:exchanging units to is the same as first exchanging to and thento . Indeed,
and the final result is the same due to the equitable property (2). Note, that the matrixfrom the example is not equitable
The above consideration shows that equitable property does not allow making moneyjust by exchanging currencies. If (2) does not hold for someindexes, for example
then having units one can make money just by exchanging them to through and back
If we denote , then after making suchexchanges instead of one would have units — the capital wouldincrease like geometric progression! If there is an opposite inequality
then such advantage have those with currency. So, condition (2) guaranteesthat no one can speculate on currency exchange, thus motivating the name“equitable” — “to be fair”.
Let us give an interpretation of the matrix-vector multiplication for exchange rates matrices.This interpretation is not connected with the equitable property (2) and showswhy exchange rates matrices are useful in general.
Consider a company which operates on the international market (e.g., a company which makesfurniture/cars/household equipment/etc, and sells their products to more than one country) and, thus, obtainsmoney in different currencies . From time to time,for such a company the natural question arises: what is thetotal amount of money we have? Specifically, at a given time the company obtainedthe following money: . With given exchange rates, the total amount of money in the currency is.That’s why we have
if matrix is the exchange rates matrix for currencies , is a row-vector with components
expressing amount of units in each currency,then components of the vector express the total amount of money in each currency.
The following example gives illustration to this.
Example 2.
Imagine a company located in Germany, let’s call it “Peaut”, which makes auto “Leoptera”.It sells this auto to five different countries: Germany (its home country), USA, United Kingdom,Japan, and Switzerland. Thus, it needs to operate with the following currencies:
The corresponding exchange rates matrix is presented in Table 1.The values were first collected from\\htmladdnormallinkWikipediahttp://en.wikipedia.org/at the middle of 2005, and then they were modified such that the resulting matrix is equitable.
EUR | USD | GBP | JPY | CHF | |
EUR | 1 | 1.25 | 0.625 | 125 | 1.5626 |
USD | 0.8 | 1 | 0.5 | 100 | 1.25 |
GBP | 1.6 | 2 | 1 | 200 | 2.5 |
JPY | 0.008 | 0.01 | 0.005 | 1 | 0.0125 |
CHF | 0.64 | 0.8 | 0.4 | 80 | 1 |
The price of “Leoptera” in each country, number of sold cars during a year, andcorresponding amount of money are gathered in Table 2. The last column givescomponents of the row-vector in our example. To answer the question what is the totalamount of money are obtained by “Peaut”, one needs to compute. The result is presented in Table 3.
Country where the cars were sold | Price for one car | Amount of sold cars (in thousands) | Obtained money (in milliards) |
---|---|---|---|
Germany | 21.000 EUR | 100 | 2.1 EUR |
USA | 32.000 USD | 35 | 1.12 USD |
UK | 14.000 GBP | 40 | 0.56 GBP |
Japan | 3.1 mln JPY | 8 | 24.8 JPY |
Switzerland | 34.000 CHF | 5 | 0.17 CHF |
Country’s currency | The total amount of money in different currencies (in milliards) |
EUR | 4.1992 |
USD | 5.249 |
GBP | 2.6245 |
JPY | 524.9 |
CHF | 6.56146 |