Stock in Daimler AG,the Famous German Automobile Manufacturer Trades on Both

question 52

Multiple Choice

Stock in Daimler AG,the famous German automobile manufacturer trades on both the Frankfurt Stock Exchange in Germany and on the New York Stock Exchange.On the Frankfurt bourse,Daimler closed at a price of €54.34 on Wednesday,March 5,2008.On the same day,Daimler closed in New York at $83.55 per share.To prevent arbitrage trading between the two exchanges,the shares should trade at the same price when adjusted for the exchange rate.The $/€ exchange rate on March 5 was $1.5203/€1.00.Thus,€54.34 * $1.5203/€ = $82.61,while the closing price in New York was $83.55.The difference is easily explainable by the fact that

• A)transactions costs exceeded the price difference, so no arbitrage was possible even for market makers.
• B)no one noticed the arbitrage that day, but in a day or so the opening price will adjust.
• C)the New York market closes several hours after the Frankfurt exchange, and thus market prices or exchange rates had changed slightly.
• D)none of the above

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