Question

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 Seimens AG trading on the Frankfurt Stock Exchange in Germany. If Seimens 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:

Answer 1

The exchange rate can be stated as:

$1.485/€

or

€0.6734/$

Step-by-step explanation:

Data provided:

Amount in Dollars for Trade done by Seimens on the NYSE = $95.19

Amount in Euros for Trade done by Seimens on the Frankfurt = €64.10

Now,

under the law of one price

the exchange rate is calculated as:

Exchange rate =
`\frac{\textup{price on NYSE}}{\textup{price on Frankfurt}}`

on substituting the respective values, we get

Exchange rate =
`\frac{\textup{95.19}}{\textup{64.10}}`

or

Exchange rate = $1.485/€

also it can be stated as:

$1.485 = €1

or

$1 = €0.6734

Hence,

The exchange rate can be stated as:

$1.485/€

or

€0.6734/$