In the London Market, Rolls Royce Stock Closed at £0

question 28

Multiple Choice

In the London market, Rolls Royce stock closed at £0.875 per share on Thursday, April 17, 2003. Rolls Royce trades as an ADR in the OTC in the United States. Five underlying Rolls Royce shares are packaged into one ADR. On April, 17, 2003, the British Pound sterling to the U.S. spot exchange rate was £0.6366/$1.00.
-Assume Nestle is trading for SF200 in Zurich and Nestle ADRs (4 ADRs per share) are trading for $40 on the New York Stock exchange.The current exchange rate is SF1/$ and a trader has $10,000 or the equivalent in SF.How much arbitrage profit can the trader make?

• A) $200
• B) $1250
• C) $2500
• D) No profit can be made

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