February 12, 2012
Arbitrage is a glorious thing. Simply put, arbitrage happens by exploiting differences in price for the same good. Say the currency exchange market (forex) in Asia is trading the US dollar at 1.5 British pounds per USD (yes, I know it’s actually the other way around these days, but let’s have some fun), while the European market is trading 1.25 British pounds per USD. I could leave New York, head to Tokyo, and buy a whole bunch of British pounds with my US dollars, say $100 worth. With my newly minted £150, I could then fly off to London and sell them in exchange for dollars. Since in London I get $1.00 for every £1.25, then due to the market inefficiency I will receive $120 back, yielding a nice $20 profit on my original investment. Yay for me! (And all I had to do was circumnavigate the globe. Easy peasy.)
Not surprisingly, finding arbitrage opportunities is extremely difficult and exploiting those opportunities is nigh impossible. For example, in the forex markets, big banks have incredibly powerful computers constantly scanning currency exchanges and will instantaneously capitalize on them for the brief seconds they exist before the markets equalize. Mere mortals like you and I will never know what it’s like to feel the flush of free money created out of thin air. Or will we?
Kaplan has created a website dedicated to the New GMAT: www.testchange.com. (Actually, one of the videos posted there was the inspiration for this blog entry.] As you may already know, the GMAT is changing in June 2012 by introducing a new section called Integrated Reasoning. The current GMAT demands 100-120 hours of diligent prep time if you are looking to achieve a competitive score (e.g., 650+).
After June 5th of this year, GMAT test takers will have a brand new section to prepare for in addition to the AWA, Quant, and Verbal sections current test takers must master. So how does this present an arbitrage opportunity? If you prepare for and take the GMAT before June 1st, then you will lock in your GMAT score for five years and never have to even think about IR. Those that do not lock in their scores will have to devote the 100+ hours of prep time you put in, then spend another 30 hours or more learning about integrated reasoning data sets and the new question types that accompany them.
Think smart. Act strategically. Let other folks buy the GMAT for 130+ hours of their time. Your market is selling it to you for a much cheaper price. I’ll be drilling down on the five new IR question types in some upcoming posts so come on back for a tall drink of schadenfreude.