Grupo Televisa S.A. is a Mexican firm listed in Mexico, with an American Depository Receipt (ADR) traded on the NYSE. The stock prices are 300 pesos in Mexico, and 30 dollars in New York; the exchange rate is 10 pesos per dollar. Suddenly, a political problem in Mexico leads to a depreciation of the peso and a drop of the Mexican stock market. The new exchange rate is 11 pesos per dollar, and the new stock price of Grupo Televisa is 275 pesos.
a. What should the price quoted in New York be?
b. Actually the stock price in New York is 20 dollars. Should you buy or sell the stock, and why?

Question

Quizplus · Accepted Answer

The Answer is a. The price quoted in New York should be:
275/11 = $25.
b. You should buy the stock in New York and sell it in Mexico. The price dropped too much in New York.