Example of Arbitrage

If the dollar price of a euro is $0.9 in Chicago and $1.0 in Berlin, then an arbitrageur who is usually a foreign exchange dealer of a commercial bank would buy Euros from commercial bank at Chicago at $0.9 and would sell it at $0.1 at Berlin. Thus, making a profit of $0.1 per euro. This will be huge if the number of Euros is large. When the arbitrageur will buy from Chicago, he will increase the demand of euro at Chicago and will increase the supply at Berlin. Thus, dollar price of euro will increase at Chicago and decrease at Berlin. This will continue until the dollar price of euro is equal at both the centers and the profitability of further arbitrage is eliminated.