You are a U.S. investor and wish to buy 10,000 shares of XYZ Inc. You can...

You are a U.S. investor and wish to buy 10,000 shares of XYZ Inc. You can

buy them on the Paris Stock XC or on London Stock XC. You ask the brokers

to quote you net prices (no commissions paid). There are no taxes on foreign shares listed

in London. Here are the quotes:

London (Pound) 56.75 - 57.25

Paris (Euro) 78.5 - 78.75

(Dollars per Pound) 1.5000 - 1.5040

(Euro per dollar) 0.91100 - 0.91200

a. What is your total dollar cost if you buy the XYZ Inc shares at the cheaper

place?

b. Are there arbitrage opportunities between London and Paris? Explain.

Please solve in Excel

Please show cells for working

Solutions

Expert Solution

total dollar cost in London = ask price in pounds * ask rate of Dollars per Pound

total dollar cost in London = 57.25 * 1.5040 = $86.1040

total dollar cost in Paris = ask price in Euros / bid rate of Euros per Dollar

total dollar cost in Paris = 78.75 / 0.9110 = $86.4435

The total dollar cost is cheaper in London.

The total dollar cost in London is $86.1040

total sale proceeds in London = bid price in pounds * bid rate of Dollars per Pound

total sale proceeds in London = 56.75 * 1.5000 = $85.1250

total sale proceeds in Paris = bid price in Euros / ask rate of Euros per Dollar

total sale proceeds in Paris = 78.50 / 0.9120 = $86.0746

No, there are no arbitrage opportunities because the total dollar sale proceeds are are lower than the total dollar cost in both cities

No, there are no arbitrage opportunities because the total dollar sale proceeds are are lower than the total dollar cost in both cities. That is, a risk less profit cannot be earned buying the XYZ Inc shares in one city and immediately selling the share in another city.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

You want to buy a 13-year bond with a maturity value of $10,000, and you wish...

You want to buy a 13-year bond with a maturity value of $10,000, and you wish to get a return of 7.25% annually. How much will you pay? (Round your answer to the nearest cent.) ____$ Calculate, to the nearest cent, the future value FV (in dollars) of an investment of $10,000 at the stated interest rate after the stated amount of time. 3.5% per year, compounded quarterly (4 times/year), after 7 years FV $______

a) Suppose that you buy 200 shares of XYZ at $80 per share and that you...

a) Suppose that you buy 200 shares of XYZ at $80 per share and that you finance $6,000 of your investment with a margin loan at 6% interest. What is your initial margin? b) Suppose that you buy 200 shares of XYZ at $80 per share and that you finance $6,000 of your investment with a margin loan at 6% interest. If the price of one share of Company XYZ goes up 8% over the course of a year, what...

An investor borrows $22,000 on margin to buy 1,000 shares in Tamarind, Inc. at $55 per...

An investor borrows $22,000 on margin to buy 1,000 shares in Tamarind, Inc. at $55 per share. The initial margin requirement is 50% while the maintenance margin is 35%. a.) What is the margin (%) in the account at purchase of the stock? b.) To what level will the stock price have to fall to generate a margin call?

You wish to buy a $10,000 dining room set. The furniture store offers you a three-year...

You wish to buy a $10,000 dining room set. The furniture store offers you a three-year loan with an 11 percent APR. What are the monthly payments? (Round your answer to two decimal places.)

Suppose you buy 100 shares of stock XYZ at $10 a share with a margin of...

Suppose you buy 100 shares of stock XYZ at $10 a share with a margin of 50%. You also buy 200 shares of stock ABC at $50 a share with an 60% margin. You are very sure that, in six month, the price of the first stock would be $15 because you got insider information, but you are not so sure about the price of the second stock. Suppose you want to achieve a 20% return from your portfolio, then...

You want to buy 100 shares of XYZ stock, and you don't want to pay more...

You want to buy 100 shares of XYZ stock, and you don't want to pay more than $20 per share for it. Which option strategy would be the least expensive? Use letters in alphabetical order to select options A Buy one XYZ 20 call for $2. B Sell one XYZ 20 call for $4. C Buy one XYZ 20 put for $1. D Sell one XYZ 20 put for $3. You want to set up a covered call position on...

An investor sells short 100 shares of XYZ stock at $62 and sells 1 XYZ Oct...

An investor sells short 100 shares of XYZ stock at $62 and sells 1 XYZ Oct 60 put @$6. The maximum potential gain is: (Show your work).

XYZ Ltd is selling at K45 a share. You would like to buy 200 shares for...

XYZ Ltd is selling at K45 a share. You would like to buy 200 shares for your preferred price of K42 a share using 60% margin. XYZ pays no dividends and the interest rate on a margin loan is 6%. You have two types of orders at your disposal:  Limit buy order  Stop loss order A. Which of the two types of orders would you place to buy XYZ at your preferred price? B. Assuming your order in...

XYZ Corporation declared a $.10 cash dividend on the 10,000 shares outstanding.

ITS ALL SAME QUESTIONXYZ Corporation declared a $.10 cash dividend on the 10,000 shares outstanding.Prepare the necessary Journal EntriesDate of DeclarationDate of RecordDate of PaymentOn June 15, the company’s board of directors declared a 10% stock dividend to be distributed on July 30th to the stockholder’s on record for July 3. The company had 200,000 shares of $1 par value stock outstanding with a market value of $20. Prepare the required Journal Entries.ABC had a 2:1 stock split. Outstanding shares...

Sam buys 500 shares fo XYZ, Inc. for $10,000. On December 15, 2020. he sells all of these shares for $7,000 (a $3,000 loss).

Sam buys 500 shares fo XYZ, Inc. for $10,000. On December 15, 2020. he sells all of these shares for $7,000 (a $3,000 loss). On January 10, 2021, he buys another 500 shares of identical XYZ stock for $8,000. What is Sam's basis in the XYZ stock purchased on January 10, 2021?

Subjects