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In the London Market, Rolls Royce Stock Closed at £0

Question 16

Multiple Choice

In the London market, Rolls Royce stock closed at £0.875 per share on Thursday, April 17, 2003. Rolls Royce trades as an ADR in the OTC in the United States. Five underlying Rolls Royce shares are packaged into one ADR. On April, 17, 2003, the British Pound sterling to the U.S. spot exchange rate was £0.6366/$1.00.
-If the Rolls Royce ADRs were trading at $5.75 when the underlying shares were trading in London at £0.875,ignoring transaction costs,the arbitrage trading profit would be:


A) $0.00.
B) $1.12.
C) $2.12.
D) $3.12.

Correct Answer:

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