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Answer all questions cohesively with useful graphs or tables if needed like a Case Study

The CEO of High Street Global Advisors would like a report and presentation detailing the arbitrage opportunities of investing in Royal Dutch Shell Group. Specifically, they would like concise answers to the questions below. They would like the answers in the form of a three to four-page report (excluding attachments) and are willing to sit in on a brief presentation that brings across the main points of the report. 1) Exhibit 2 illustrates the organizational structure of Royal Dutch Shell Group. Discuss why the corporate structure of Royal Dutch Shell Group should result in investors pricing the shares of Royal Dutch and Shell Group in parity. a. Provide examples of other multinational companies that you know to compare the ways in which the listing of Royal Dutch and Shell differs from the equity listings of other large multinational firms. 2) Explain what are ADRs. a. Why might companies use ADRs to raise capital in segmented equity markets? b. Why would investors be interested in holding an ADR? Are there diversification opportunities with ADRs that investors would find attractive? a. 3) Exhibit 8 provides the price differentials for Royal Dutch and Shell, which measures the degree to which shares of Royal Dutch and Shell differ from parity. Do the price differentials indicate that either Royal Dutch or Shell are overpriced? b. Discuss which you will short and long given the price differentials. How could the arbitrage transaction correct the mispricing that you identified? Will you execute your trades in Europe or New York? Is the mispricing more severe in Europe or New York? d. Is the pricing consistent with investors viewing Royal Dutch Shell Group as one company or as two separate companies? C. 4) One potential explanation for the mispricing of Royal Dutch and Shell is that the equity markets are segmented. Exhibit 3 provides the ownership structure of Royal Dutch and Shell. While investors in Europe and New York hold roughly equal proportions of Royal Dutch, the holdings of Shell are concentrated in the UK. Discuss why this ownership structure might indicate that the equity markets for Royal Dutch and Shell are segmented. 1) Royal Dutch Shell Group is a dual listed company, sometimes referred to as a "Siamese Twin". Go to Exhibit 2 which provides an organizational chart showing the ownership and operational structure of the Royal Dutch and Shell Group. This should show that the separation of Royal Dutch and Shell exists only on the holding company level and that all operations of the company are owned 60/40 by the two holding companies. That is, investors that hold the shares are entitled to all the cashflows from the combined company spit 60/40. 2) Go to Exhibit 8, which shows that one share of Royal Dutch equals 1.5457 ADRs of Shell Corp. Compare the price of shares in Europe (line 6) to the equivalent price of shares according to the alliance between Royal Dutch and Shell (line 8). Do the same for prices in New York. Use the differences between the implied prices and the quoted prices to support your arbitrage investment strategy of taking a long position in Shell and short position in Royal Dutch. 3) Exhibit 3 shows considerable differences in the ownership of Royal Dutch and Shell in different markets. Notice that while the ownership of Royal Dutch is nearly equally split between Dutch and US investors, Shell is almost entirely held by investors in the UK. The fact that the holdings are concentrated in the portfolios of investors that reside in different countries does not mean that the share prices should deviate from parity. However, the portfolio holdings do suggest that the markets for Royal Dutch and Shell are segmented. 4) Exhibit 8 also provides the geographic differentials of Royal Dutch and Shell, which measures the difference in the share prices as a function the security being listed in Europe vs New York. Compare the geographic differentials of Royal Dutch and Shell. Do investors in Europe and New York price the shares of Royal Dutch similarly? What about Shell? Given the ownership structure of Royal Dutch and Shell are the geographic differentials expected? (That is, should we expect large differences in the price of either Royal Dutch or Shell conditional on the security being listed in Europe vs New York?) The CEO of High Street Global Advisors would like a report and presentation detailing the arbitrage opportunities of investing in Royal Dutch Shell Group. Specifically, they would like concise answers to the questions below. They would like the answers in the form of a three to four-page report (excluding attachments) and are willing to sit in on a brief presentation that brings across the main points of the report. 1) Exhibit 2 illustrates the organizational structure of Royal Dutch Shell Group. Discuss why the corporate structure of Royal Dutch Shell Group should result in investors pricing the shares of Royal Dutch and Shell Group in parity. a. Provide examples of other multinational companies that you know to compare the ways in which the listing of Royal Dutch and Shell differs from the equity listings of other large multinational firms. 2) Explain what are ADRs. a. Why might companies use ADRs to raise capital in segmented equity markets? b. Why would investors be interested in holding an ADR? Are there diversification opportunities with ADRs that investors would find attractive? a. 3) Exhibit 8 provides the price differentials for Royal Dutch and Shell, which measures the degree to which shares of Royal Dutch and Shell differ from parity. Do the price differentials indicate that either Royal Dutch or Shell are overpriced? b. Discuss which you will short and long given the price differentials. How could the arbitrage transaction correct the mispricing that you identified? Will you execute your trades in Europe or New York? Is the mispricing more severe in Europe or New York? d. Is the pricing consistent with investors viewing Royal Dutch Shell Group as one company or as two separate companies? C. 4) One potential explanation for the mispricing of Royal Dutch and Shell is that the equity markets are segmented. Exhibit 3 provides the ownership structure of Royal Dutch and Shell. While investors in Europe and New York hold roughly equal proportions of Royal Dutch, the holdings of Shell are concentrated in the UK. Discuss why this ownership structure might indicate that the equity markets for Royal Dutch and Shell are segmented. 1) Royal Dutch Shell Group is a dual listed company, sometimes referred to as a "Siamese Twin". Go to Exhibit 2 which provides an organizational chart showing the ownership and operational structure of the Royal Dutch and Shell Group. This should show that the separation of Royal Dutch and Shell exists only on the holding company level and that all operations of the company are owned 60/40 by the two holding companies. That is, investors that hold the shares are entitled to all the cashflows from the combined company spit 60/40. 2) Go to Exhibit 8, which shows that one share of Royal Dutch equals 1.5457 ADRs of Shell Corp. Compare the price of shares in Europe (line 6) to the equivalent price of shares according to the alliance between Royal Dutch and Shell (line 8). Do the same for prices in New York. Use the differences between the implied prices and the quoted prices to support your arbitrage investment strategy of taking a long position in Shell and short position in Royal Dutch. 3) Exhibit 3 shows considerable differences in the ownership of Royal Dutch and Shell in different markets. Notice that while the ownership of Royal Dutch is nearly equally split between Dutch and US investors, Shell is almost entirely held by investors in the UK. The fact that the holdings are concentrated in the portfolios of investors that reside in different countries does not mean that the share prices should deviate from parity. However, the portfolio holdings do suggest that the markets for Royal Dutch and Shell are segmented. 4) Exhibit 8 also provides the geographic differentials of Royal Dutch and Shell, which measures the difference in the share prices as a function the security being listed in Europe vs New York. Compare the geographic differentials of Royal Dutch and Shell. Do investors in Europe and New York price the shares of Royal Dutch similarly? What about Shell? Given the ownership structure of Royal Dutch and Shell are the geographic differentials expected? (That is, should we expect large differences in the price of either Royal Dutch or Shell conditional on the security being listed in Europe vs New York?)