Question

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)

• A. SIFY
• B. INFY
• C. WIPRO
• D. TCS

Hint:

Convert every NQE opening price to rupees using the given rate, then for each share divide the price gap between the two markets by the lower (buying) price to get percentage profit.

Answer 1

The Correct Option is D

Step 1: Understanding the Question:
Arbitrage profit means buying where the price is lower and selling where the price is higher, both at the opening quotes, but the two markets use different currencies, so we first convert them to a common currency.

Step 2: Key Formula or Approach:
Convert every NQE price to rupees by multiplying by 11, since # 1 = Rs 11. Then, for each share, take the lower of the two rupee prices as the buy price and the higher as the sell price.
\[ \%\text{ profit} = \frac{\text{Sell} - \text{Buy}}{\text{Buy}} \times 100 \]

Step 3: Detailed Explanation.
SIFY: NQE price in Rs \( = 21 \times 11 = 231 \), BSE price \( = 232 \). Buy on NQE at 231, sell on BSE at 232: profit \( = \dfrac{232-231}{231}\times 100 \approx 0.43\% \).
INFY: NQE price \( = 9.5\times 11 = 104.5 \), BSE price \( = 105 \). Profit \( = \dfrac{105-104.5}{104.5}\times 100 \approx 0.48\% \).
WIPRO: NQE price \( = 5.5\times 11 = 60.5 \), BSE price \( = 60 \). Here NQE is costlier, so buy on BSE at 60, sell on NQE at 60.5: profit \( = \dfrac{60.5-60}{60}\times 100 \approx 0.83\% \).
TCS: NQE price \( = 40.5\times 11 = 445.5 \), BSE price \( = 450 \). Buy on NQE at 445.5, sell on BSE at 450: profit \( = \dfrac{450-445.5}{445.5}\times 100 \approx 1.01\% \).

Step 4: Final Answer:
Comparing 0.43%, 0.48%, 0.83% and 1.01%, TCS gives Mr. Ghosh Babu the maximum arbitrage profit.
\[ \boxed{\text{TCS}} \]