1-Business Objects trades on the Paris Bourse as ordinary shares and on the NASDAQ as American Depositary Receipts (ADRs). One ADR of Business Objects corresponds to one share on the Paris Bourse. Suppose the last transaction of Business Objects on the Paris Bourse was at25. An investor then entered on the French electronic trading system a limit order to purchase Business Objects shares at24. The ADR price quoted by a NASDAQ dealer is $23.89-24.47. The exchange rate is $0.93/. Suppose that some unfavorable information suddenly arrives that suggests that a lower price of Business Objects shares at21 would be fair. Assuming that the exchange rate has not changed, discuss which parties stand to lose on the Paris Bourse and on NASDAQ?

2-Assume you are a U.S. investor who is considering investments in the French (Stocks A and B) and Swiss (Stocks C and D) stock markets. The world market risk premium is4percent. The currency risk premium on the Swiss franc is 1.75 percent, and the currency risk premium on the euro is 2.5percent. The interest rate on one-year risk-free bonds is2.75 percent in the United States. In addition, you are provided with the following information:

Stock?A??B??C??D

Country?France??France??Switzerland?Switzerland

??1??0.90??1??1.4

??1??0.80??-0.40??-1.0

?-0.30??0.75??1.0??-0.4

a.Calculate the expected return for each of the stocks. The U.S. dollar is the base currency.

b.Explain the differences in the expected returns of the four stocks in terms of,, and.

2. Assume you are a U.S. investor who is considering investments in the French (Stocks A and B) and Swiss (Stocks C and D) stock markets. The world market risk premium is 4 percent. The currency risk premium on the Swiss franc is 1.75 percent, and the currency risk premium on the euro is 2.5 percent. The interest rate on one-year risk-free bonds is 2.75 percent in the United States. In addition, you are provided with the following information: Stock A B C D Country France France Switzerland Switzerland m l 0.90 1 1.4 y l 0.80 -O.40 -1.0 yspr -0.30 0.75 1.0 -0.4 a. Calculate the expected return for each of the stocks. The U.S. dollar is the base currency. b. Explain the differences in the expected returns of the four stocks in terms of 5m, yg, and YSFr