Problem set:

Chp 13: p. 374 # 8, 9 & 10

ADR ArbitrageTata Motors Limited is an Indian multinational automotive manufacturing companyheadquartered in Mumbai, India. It is simultaneously listed on Bombay Stock Exchange (BSE)and New York Stock Exchange (NYSE). It trades as an ORD on the BSE and as an ADR on theNYSE. The ordinary share (ORD) price of Tata Motors is INR 535 on BSE. The spot rate isINR66.80/USD. The depository bank charges a depository fee of 10 cents per ADR.(a)Please find the symbol of Tata Motors on NYSE, the ADR ratio, the ADR program, and

the depositary bank.(b)If the price of the ADR is $41 on NYSE, is there an arbitrage opportunity? If your answeris yes, how do you design the arbitrage strategy and how much is your profit? How doesthe arbitrage activity affect the price of ADR and ORD in the two markets?(c)If the price of the ADR is $39 on NYSE, is there an arbitrage opportunity? If your answeris yes, how do you design the arbitrage strategy and how much is your profit? How doesthe arbitrage activity affect the price of ADR and ORD in the two markets?

Mini-cases:

Chp 14: p. 401-406Euro Debt FinancingRead the WSJ article and answer the following questions.

1.Why may U.S. companies shift from U.S. dollar bond issuance towards euro borrowing?2.What criteria do the bonds of the U.S. companies have to meet in order to be included in

the ECBs corporate purchases?3.McDonalds Corp is investment-grade rated. It sold a total of2 billion of bonds in April2016, among which, the 750 million euros of 2028 notes pay a yield of 0.75%. Assumethe interest is paid in euro annually. (It is easier for you to work on this problem in excel.)

(1)If the euro is expected to depreciate against the dollar at 1% per annum (exchangerate is USD1.10/euro in 2016), what is the effective cost of this 2028 notes forMcDonalds?(2)If the euro is expected to appreciate against the dollar at 1% per annum instead, whatis the new effective cost forMcDonalds?

(3)Compare your answers to (1) and (2) and discuss how the exchange rate impacts thecost of eurodebt for McDonalds.