Arbitrage means buying a share in one market and selling it simultaneously in another market. The table gives the opening price of four shares on 3rd Dec 2003 in both BSE of India (Rs) and NQE of Kya Kya island (#), where # = Rs 11.
Share BSE Opening (Rs) NQE Opening (#)
SIFY 232 21
INFY 105 9.5
WIPRO 60 5.5
TCS 450 40.5
If Mr. Ghosh Babu buys a share at the opening price on one exchange and sells it at the opening price on the other exchange, on which share does he make maximum % profit? (Exchange rate: # = Rs 11)

Question

The monthly salary for a person who follows the same expense pattern, but has a petrol expense of Rs 500 p.m., is:

Answer 1

Arbitrage profit only exists because the same share trades at slightly different rupee prices on the two exchanges at the same moment. Once every NQE price is converted to rupees, the profit percentage is simply the size of the gap relative to the cheaper price. Convert first: SIFY NQE $= 21 \times 11 = 231$, INFY NQE $= 9.5 \times 11 = 104.5$, WIPRO NQE $= 5.5 \times 11 = 60.5$, TCS NQE $= 40.5 \times 11 = 445.5$.

SIFY: prices are Rs 231 (NQE) and Rs 232 (BSE), a gap of just Rs 1 on a base above 230, giving roughly 0.43% profit.
INFY: prices are Rs 104.5 (NQE) and Rs 105 (BSE), a gap of Rs 0.5 on a smaller base near 104.5, giving roughly 0.48% profit, slightly better than SIFY.
WIPRO: prices are Rs 60 (BSE) and Rs 60.5 (NQE), a gap of Rs 0.5 on a much smaller base of 60, giving roughly 0.83% profit, better still because the base is small.
TCS: prices are Rs 445.5 (NQE) and Rs 450 (BSE), a gap of Rs 4.5, which looks big in absolute terms but sits on a base of about 445.5, giving roughly 1.01% profit, the largest of all four.

The lesson here is that a bigger rupee gap does not automatically mean a bigger percentage profit; it depends on the size of the gap relative to its own base price. TCS wins because Rs 4.5 on a base near 445 outperforms the smaller absolute gaps on WIPRO and INFY once expressed as a percentage.

Let's summarize:

Always convert to one currency before comparing prices across exchanges.
Percentage profit depends on the gap relative to the buying price, not the absolute rupee gap.

TCS gives Mr. Ghosh Babu the highest percentage arbitrage profit.

Answer 2

Arbitrage profit only exists because the same share trades at slightly different rupee prices on the two exchanges at the same moment. Once every NQE price is converted to rupees, the profit percentage is simply the size of the gap relative to the cheaper price. Convert first: SIFY NQE $= 21 \times 11 = 231$, INFY NQE $= 9.5 \times 11 = 104.5$, WIPRO NQE $= 5.5 \times 11 = 60.5$, TCS NQE $= 40.5 \times 11 = 445.5$.

SIFY: prices are Rs 231 (NQE) and Rs 232 (BSE), a gap of just Rs 1 on a base above 230, giving roughly 0.43% profit.
INFY: prices are Rs 104.5 (NQE) and Rs 105 (BSE), a gap of Rs 0.5 on a smaller base near 104.5, giving roughly 0.48% profit, slightly better than SIFY.
WIPRO: prices are Rs 60 (BSE) and Rs 60.5 (NQE), a gap of Rs 0.5 on a much smaller base of 60, giving roughly 0.83% profit, better still because the base is small.
TCS: prices are Rs 445.5 (NQE) and Rs 450 (BSE), a gap of Rs 4.5, which looks big in absolute terms but sits on a base of about 445.5, giving roughly 1.01% profit, the largest of all four.

The lesson here is that a bigger rupee gap does not automatically mean a bigger percentage profit; it depends on the size of the gap relative to its own base price. TCS wins because Rs 4.5 on a base near 445 outperforms the smaller absolute gaps on WIPRO and INFY once expressed as a percentage.

Let's summarize:

Always convert to one currency before comparing prices across exchanges.
Percentage profit depends on the gap relative to the buying price, not the absolute rupee gap.

TCS gives Mr. Ghosh Babu the highest percentage arbitrage profit.

Show Hint

The Correct Option is D

Solution and Explanation

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