Question

In the Frankfurt market, Aldi stock closed at €5 per share. On the same day, the euro U.S. dollar spot exchange rate was €.625/$1.00. Aldi trades as an ADR in the OTC market in the United States. Five underlying Aldi shares are packaged into one ADR. The no-arbitrage U.S. price of one ADR is

Answer 1

$15.625

Step-by-step explanation:

The computation of the no-arbitrage U.S. price of one ADR is shown below:

= Euro U.S. dollar spot exchange rate × closing price per share × number of shares

= €.625 × €5 per share × 5 shares

= $15.625

Simply we multiply the Euro U.S. dollar spot exchange rate with the closing price per share and the number of shares so that the correct price of one ADR can be come