Posted by: alok | July 5, 2006

The world of arbitrage opportunities..

Can we leverage postal stamps arbitrage opportunity to make some quick bucks? The scheme relies on the fact that If I have to send a mail (yes the same standard snail mail through post office) to US, it would cost me around Rs. 40 (or say $1), but if I have to send something back from US to India through normal USPS it costs me around $4, a difference of $3, or rather it costs 300% more to send the same amount of materials over same distance, (and in more or less the same time, with roughly the same degree of assurance). So does it qualify as an arbitrage opportunity? Now, the logistics of reaping this arbitrage — I send a mail to US with return postage (will cost me around Rs. 90-100- around $2) in India and my recipient encashes the return Indian stamp for US postage of $4 to India. Then he can sell that postage stamp again to anyone in US for $4 (making a hard cash of $4) or send his packates if any to India. This way me and my US partner can make $2 for every $2 invested in this channel. I assume it will take around 15 days or so to send a normal post to US, and another 15 days for my US partner to encash the return stamp. So we can double our money in 30 days..!! A perfect arbitrage (as per my finance professors) requires zero capital investment, and an assured return within the time frame. So instead of putting in my own money, i can probably take money from an ATM using my credit-card (they will charge me 2-3% per month), and use that money for encashing the postal arbitrage..!!!!

I think such opportunities exist in every logistics company, which involves sending things back and forth across international boundaries. For instance, If I have to make a call to US from India, BSNL charges me Rs. 7/minute (i.e. 1 hour of US call will be Rs. 420 or around $10). However, my friend in US can call me purchase calling cards at $5 for 40-50 minutes talk time. i.e. around $7-8/hour. So can I use his calling cards in US (meant for calling to India) for a return call? Not sure, if calling cards comapnies will let me do so, but atleast I can send an email to my friend in US giving him my phone number in India, and the number of the person whom i want to call in US. My friend can then just call me using the calling card, and my US party using his local service provider and conference the two. This will cost my friend $7-$8/hour (+ nominal charge for call within US), bill me $9/hour, and pocket $1/hour. Which business can give you $1/hour for doing nothing..!!!! I don’t know about the volume of calls being made from India to US, so can’t make an estimate of existing arbitrage, but it must run in several thousand $$/year..!!

My finance course ends here itself, go and mint money. But is it legally/ethically allowed? While browsing at the legal implications of encashing these arbitrage opportunities, I came across the story of a genius named Charles Ponzi. Mr. Ponzi became immortal with his revolutionary idea of ‘postal stamps arbitrage opportunity’, which he did way back in 1912, and was jailed..!!! You can do a google on Charles Ponzi and find what he did. Infact he even found arbitrage in real estate and did somethign similar in Florida, only to be put behind the bars there also.

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Responses

  1. Aaalloooooo,

    You have been tagged.

    Ram

  2. as-94783-sa

    Love what you have to say

  3. Thanks .. a very small start 😉

  4. I would like to see a continuation of the topic

  5. Did you find any other opoprtunity?

  6. Interesting piece of writing. Thanks for sharing

  7. The best site I’ve visited yet, alok.wordpress.com you rule

    here are a few words of chaos:
    In it something is. Many thanks for an explanation, now I will know.

  8. […] WordPress The world of arbitrage opportunities. […]


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