Use the information for the question(s)below.
An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of International Business Machines (IBM),three shares of Merck (MRK),and three shares of Citigroup Inc.(C).Suppose the current market price of each individual stock are shown below:
-An American Depository Receipt (ADR)is a security issued by a U.S.bank and traded on a U.S.stock exchange that represents a specific number of shares of a foreign stock.Siemens AG has an ADR that trades on the NYSE and is equivalent to one share of Siemens AG trading on the Frankfurt Stock Exchange in Germany.If semens trades for $95.19 on the NYSE and for €64.10 on the Frankfurt Stock Exchange,then under the law of one price,the current exchange rate is closest to:
A)$0.6744/€.
B)€0.6734/$.
C)€1.4850/$.
D)$1.5274/€.

Question

Use the information for the question(s)below.
An exchange traded fund (ETF)is a security that represents a portfolio of individual stocks.Consider an ETF for which each share represents a portfolio of two shares of International Business Machines (IBM),three shares of Merck (MRK),and three shares of Citigroup Inc.(C).Suppose the current market price of each individual stock are shown below: 
-An American Depository Receipt (ADR)is a security issued by a U.S.bank and traded on a U.S.stock exchange that represents a specific number of shares of a foreign stock.Siemens AG has an ADR that trades on the NYSE and is equivalent to one share of Siemens AG trading on the Frankfurt Stock Exchange in Germany.If semens trades for $95.19 on the NYSE and for €64.10 on the Frankfurt Stock Exchange,then under the law of one price,the current exchange rate is closest to:
A)$0.6744/€. 
B)€0.6734/$. 
C)€1.4850/$. 
D)$1.5274/€.

Quizplus · Accepted Answer

The law of one price states that identical goods in different markets should have the same price when the price is expressed in the same currency. Therefore, we can set up the following equation:

$95.19/1 ADR = €64.10/1 share of Siemens AG

To find the current exchange rate in terms of dollars per euro, we need to solve for dollars:

$95.19 = €64.10 x Exchange rate

Exchange rate = $95.19/€64.10 = $1.4850/€

Therefore, the correct answer is B)€0.6734/$, which is the reciprocal of the exchange rate we calculated above.

Use the Information for the Question(s)below