# Interest / Index Arbitrage

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| By Vishalgupta
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Vishalgupta
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Quizzes Created: 1 | Total Attempts: 42
Questions: 13 | Attempts: 42

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This quiz is to test your understanding of various low risk products,questions asked are very simple and every one is expexted to get full marks.

• 1.

### What arbitrage trade can you make from following situation:    Cash trading at: Rs.100    Current month future trading at: Rs. 95    Next month future trading at: Rs.97

• A.

Current month cash futures

• B.

Next month cash futures

• C.

Calendar

• D.

None of the above

C. Calendar
Explanation
In this situation, an arbitrage trade can be made by executing a calendar spread. A calendar spread involves buying a futures contract for a later month and simultaneously selling a futures contract for a nearby month. In this case, one can buy the next month futures contract at Rs.97 and sell the current month futures contract at Rs.95. By doing so, the trader can take advantage of the price difference between the two contracts and potentially make a profit.

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• 2.

### Record date for a stock is 27th Feb 2008 & dividend declared is Rs.15. What trade will you take if the expiry is on 26th  Feb  2008 given the following situation:   Cash trading at: Rs.1232   Current month future trading at: Rs. 1229   Next month future trading at: Rs.1227

• A.

Current month cash futures

• B.

Next month cash futures

• C.

Calendar

• D.

None of the above

B. Next month cash futures
Explanation
Given that the record date for the stock is 27th Feb 2008 and the dividend declared is Rs.15, the trade to take if the expiry is on 26th Feb 2008 would be next month cash futures. This is because the dividend declared will be paid to shareholders who hold the stock on the record date, which is after the expiry date. Therefore, by taking next month cash futures, the trader can avoid the risk of losing the dividend payment.

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• 3.

### You have 20,000 shares of Rs.100 each, company declares split of 1:5. What is the value of shares that you will have after ex-date?

• A.

Rs.100,00,000

• B.

Rs.20,00,000

• C.

Rs. 1,00,000

• D.

Rs. 2,00,00,000

B. Rs.20,00,000
Explanation
After the split of 1:5, each share will be divided into 5 shares. So, the total number of shares will increase to 20,000 x 5 = 100,000. The value of each share will be reduced to Rs.100/5 = Rs.20. Therefore, the total value of shares that you will have after the ex-date will be 100,000 x Rs.20 = Rs.20,00,000.

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• 4.

### If you flip a stock with inflow of 0.5% and reinitiate the position at end of the day with outflow of  0.1% you have gained intraday (approx.):

• A.

0.3%

• B.

0.4%

• C.

0.33%

• D.

None of the above

B. 0.4%
Explanation
If you flip a stock with an inflow of 0.5% and reinitiate the position at the end of the day with an outflow of 0.1%, the net gain would be the difference between the inflow and outflow percentages. Therefore, the gain would be 0.5% - 0.1% = 0.4%.

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• 5.

### What is the cost for BSE NSE arbitrage?

• A.

0.35%

• B.

0.15%

• C.

0.07%

• D.

0.28%

D. 0.28%
Explanation
The cost for BSE NSE arbitrage is 0.28%.

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• 6.

### You have position in XYZ stock in which you were neither able to flip nor roll. What will you do to exit the position?

• A.

Do price discovery for cash

• B.

Do price discovery for future

• C.

Sell equal quantity of cash every hour throughout the day

• D.

None of the above

A. Do price discovery for cash
Explanation
To exit the position in XYZ stock where flipping or rolling is not possible, one can do price discovery for cash. This involves determining the fair value of the stock in the current market by analyzing various factors such as supply and demand, market trends, and fundamental analysis. By conducting price discovery for cash, the individual can assess the current value of the stock and make an informed decision on whether to sell or hold the position.

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• 7.

### If cash trading at Rs. 200 and dividend declared in the stock is Rs. 5, at what price should the future trade so that there does not exist any arbitrage opportunity?

• A.

Rs. 200

• B.

Rs. 195

• C.

Rs. 205

• D.

None of the above

B. Rs. 195
Explanation
In order to avoid any arbitrage opportunity, the price of the future trade should be lower than the cash trading price minus the dividend declared. In this case, the cash trading price is Rs. 200 and the dividend declared is Rs. 5. Therefore, the future trade should be priced at Rs. 195 to prevent any arbitrage opportunity.

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• 8.

### During post market trading at what price should one put the order in NSE?

• A.

• B.

Closing price

• C.

LTP

• D.

MKT

D. MKT
Explanation
The correct answer is "MKT." MKT stands for "Market" and refers to the price at which the order should be placed during post-market trading on the NSE (National Stock Exchange). This means that the order will be executed at the prevailing market price at that time, ensuring immediate execution.

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• 9.

### What happens when the stock goes Ex-rights?

• A.

Mkt cap of the company decreases

• B.

Mkt. cap of the company increases

• C.

Number of shares and Mkt cap. of the company increases

• D.

Number of shares and Mkt cap. of the company decreases

C. Number of shares and Mkt cap. of the company increases
Explanation
When a stock goes ex-rights, it means that the rights to buy additional shares in the company have expired. This typically occurs when a company issues new shares to existing shareholders at a discounted price. As a result, the number of shares in the company increases as shareholders exercise their rights to buy new shares. Additionally, the market capitalization of the company also increases because there are now more shares outstanding.

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• 10.

### Following data has been calculated taking closing prices as on 30th Jan:Total Mkt. Cap of the INDEX: 50 CrMkt. Cap of stock Y: 0.25 CrMkt. Cap of stock X: 1.25 CrStock X is going to replace stock Y in the Index. From the above information find:1) Weight of stock X in Changed Index

• A.

2.25%

• B.

0.5%

• C.

2.51%

• D.

None of the above

D. None of the above
Explanation
The correct answer is None of the above. To calculate the weight of stock X in the changed index, we need to divide the market capitalization of stock X by the total market capitalization of the index and multiply by 100. In this case, the market capitalization of stock X is 1.25 Cr and the total market capitalization of the index is 50 Cr. Therefore, the weight of stock X in the changed index is (1.25/50) * 100 = 2.5%.

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• 11.

### 2) Adjustment that has to be done if you have Undha baskets

• A.

Buy Y and Sell X

• B.

Buy X and Sell Y

• C.

Buy X and Y

B. Buy X and Sell Y
Explanation
The correct answer is "Buy X and Sell Y". This means that if you have Undha baskets, you should buy X and sell Y. This implies that there is a need to adjust the buying and selling strategy based on the presence of Undha baskets. The explanation suggests that buying X and selling Y is the appropriate adjustment to make in this scenario.

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• 12.

### Sensex is a ....

• A.

Market cap. weighted Index

• B.

Free Float weighted Index

• C.

Price Weighted Index

• D.

Volume Weighted Index

B. Free Float weighted Index
Explanation
A free float weighted index is a stock market index in which the weight of each stock is determined by its free float market capitalization, which is the total market value of a company's outstanding shares that are freely available for trading. This means that stocks with a higher free float market capitalization will have a greater impact on the index. Therefore, the Sensex being a free float weighted index suggests that it is calculated based on the free float market capitalization of the stocks included in the index.

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• 13.

### Is there any arbitrage opportunity given the following situation?Cash trading @ 5083Call trading @ 150Put trading @ 75Strike 5000

• A.

Yes, Conversion

• B.

No opportunity

• C.

Yes, Reversal

C. Yes, Reversal
Explanation
A reversal arbitrage opportunity exists in this situation. In a reversal arbitrage strategy, an investor would simultaneously buy the underlying asset (cash trading) and buy a put option while also selling a call option. The investor can then exercise the put option to sell the underlying asset at the strike price, while also receiving a premium from selling the call option. Since the cash trading price is higher than the sum of the put and call trading prices, there is a potential to make a risk-free profit through this strategy.

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• Current Version
• Jun 12, 2024
Quiz Edited by
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• Feb 04, 2009
Quiz Created by
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