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International Flavors and Fragrances (IFF) is an S&P 500 firm. Currently IFF’s stock trades for $122.50...

  1. International Flavors and Fragrances (IFF) is an S&P 500 firm. Currently IFF’s stock trades for $122.50 on the New York Stock Exchange (NYSE). You notice that on the NASDAQ IFF trades for $112.50. Which finance principle does this circumstance violate? As an investor, what action(s) will you take? If you take action, what will be the result for you? What will be the result for IFF’s stock?
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Answer #1

IFF’s stock trades for $122.50 on NYSE and for $112.50 on NASDAQ

The law of one price is violated in this circumstance. The law of one price states that, the same product should trade at the same price in all the markets.

The price on NASDAQ is lower than that on NYSE. So, as investors we can buy IFF from NASDAQ and then sell on NYSE.

It would result in a profit of (122.50 - 112.50) = $10 per share

The IFF's stock price corrects until the prices on both NYSE and NASDAQ is the same

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