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Assume that a firm trades on both the Frankfurt Stock Exchange in Germany and on the New York Stock Exchange in the US. On the

Assume that a firm trades on both the Frankfurt Stock Exchange in Germany and on the New York Stock Exchange in the US. On the Frankfurt bourse, it closed at a price of 51.05. On the same day, the price in New York was at $63.33 per share. To prevent arbitrage trading between the two exchanges, the shares should trade at the same price when adjusted for the exchange rate.

a. What was the implied (no-arbitrage) exchange rate?

b. Suppose the exchange rate was $1.22/ on that day. How could an investor take advantage of it?

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