In the Frankfurt market, Aldi stock closed at €5 per share. On the same day, the euro U.S. dollar spot exchange rate was €.625/$1.00. Aldi trades as an ADR in the OTC market in the United States. Five underlying Aldi shares are packaged into one ADR. The no-arbitrage U.S. price of one ADR is

Question

Quizplus · Accepted Answer

To find the U.S. price of one ADR, we need to convert the price of one Aldi share in euro to U.S. dollars and then adjust for the fact that five shares are packaged into one ADR. 
First, we convert €5 to U.S. dollars using the spot exchange rate: 
€5 ÷ 0.625 = $8 
Next, we multiply $8 by 5 (the number of underlying shares per ADR): 
$8 × 5 = $40 
Finally, we divide $40 by 5 (the number of underlying shares per ADR) to get the U.S. price of one ADR: 
$40 ÷ 5 = $15.625. 
Therefore, the correct answer is B.

In the Frankfurt Market, Aldi Stock Closed at €5 Per