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ADR Arbitrage: ADR ArbitrageChina Telecom Corp. is simultaneously listed on Hong Kong Stock Exchange (HKSE) and New York Stock Exchange (NYSE). It trades as an

ADR Arbitrage:

ADR ArbitrageChina Telecom Corp. is simultaneously listed on Hong Kong Stock Exchange (HKSE) and New York Stock Exchange (NYSE). It trades as an ORD on the HKSE and as an ADR on the NYSE. The ordinary share (ORD) price of China Telecom is HKD 4 on HKSE. The spot rate is HKD7.75/USD. The depository bank charges a depository fee of 10 cents per ADR.

(c) If the price of the ADR is $50 on NYSE, if there is an arbitrage opportunity. If your answer is yes, how do you design the arbitrage strategy and how much is your profit? How does the arbitrage activity affect the price of ADR and ORD in the two markets?

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