What is the no-arbitrage U.S. dollar price

| August 30, 2017

Question
XYZ Company’s stocks trade on the Milan bourse (another term for stock exchange) and the company trades as an American Depository Receipt (ADR) in the American Stock Exchange. On Friday, the stock closed at EUR15.41, and the ADR closed at $21.93. If the $/Euro spot exchange rate on Friday was $1.4216/EUR1.00, answer the following:

What is the no-arbitrage U.S. dollar price of one ADR?

Is there an arbitrage opportunity?

Formulate your answers as a memo advising the senior portfolio manager of this potential trading opportunity. In your memo, explain the reason for your decision.

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