Please consider the following information for the next 3 questions. A share of the ADR (American Depository Receipt) of a Canadian firm represents four shares of that firm's stock that is traded on the Toronto stock exchange. The share price of the firm was 40 Canadian dollars when the Toronto stock market closed. As the U.S. market opens, the Canadian dollar is worth $0.75 per Canadian dollar Question 11 (3.33 points) What is the equilibrium price of one share of ADR? $30.00 $53.33 $213.33. $120.00 Question 12 (3.33 points) If the ADR were trading at $170 when the underlying share trading on the Toronto stock exchange at 40 Canadian dollars and the Canadian dollar is worth $0.75, what can you do to earn a trading profit, ignoring transaction costs? Short sell one share of ADR at the price of $170 in the U.S. market, and convert the proceeds to Canadian dollars at the spot rate of $0.75 to purchase four shares of the Canadian firm's stock at 40 Canadian dollars per share on the Toronto Stock stock exchange. The transaction would yield a profit of $140.00 Short sell one share of ADR at the price of $170 in the U.S. market, and convert the proceeds to Canadian dollars at the spot rate of $0.75 to purchase four shares of the Canadian firm's stock at 40 Canadian dollars per share on the Toronto Stock stock exchange. The transaction would yield a profit of $116.67. Short sell 4 shares of the Canadian firm's stock at 40 Canadian dollars per share on the Toronto stock exchange, and convert the proceeds to Canadian dollars at the spot rate of $0.75 to purchase one share of ADR at the price of $120 per share in the U.S. market. The transaction would yield a profit of $43.33. Short sell one share of ADR at the price of $170 in the U.S. market, and convert the proceeds to Canadian dollars at the spot rate of $0.75 to purchase four shares of the Canadian firm's stock at 40 Canasian dollars per share on the Toronto Stock stock exchange. The transaction would yield a profit of $50.00 Question 13 (3.33 points) If the ADR were trading at $85 when the underlying share trading on the Toronto stock exchange at 40 Canadian dollars and the Canadian dollar is worth $0.75. what can you do to earn a trading profit ignoring transaction costs? Short sell 4 shares of the Canadian firm's stock at 40 Canadian dollars per share on the Toronto stock exchange, and convert the proceeds to Canadian dollars at the spot rate of $0.75 to purchase one share of ADR at the price of $85 per share in the U.S. market. The transaction would yield a profit of $128.33. O Short sell one share of ADR at the price of $85 in the U.S. market, and convert the proceeds to Canadian dollars at the spot rate of $0.75 to purchase four shares of the Canadian firm's stock at 40 Canadian dollars per share on the Toronto stock exchange. The transaction would yield a profit of $31.67. Short sell one share of ADR at the price of $85 in the U.S. market, and convert the proceeds to Canadian dollars at the spot rate of $0.75 to purchase four shares of the Canadian firm's stock at 40 Canadian dollars per share on the Toronto stock exchange. The transaction would yield a profit of $55.00. Short sell 4 shares of the Canadian firm's stock at 40 Canadian dollars per share on the Toronto stock exchange, and convert the proceeds to Canadian dollars at the spot rate of $0.75 to purchase one share of ADR at the price of $85 per share in the U.S. market. The transaction would yield a profit of $35.00
