Problem regarding the adr arbitrage

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ADR Arbitrage

China Telecom Corp. is simultaneously listed on Hong Kong Stock Exchange (HKSE) and New York Stock Exchange (NYSE). It trades as an ORD on the HKSE and as an ADR on the NYSE. The ordinary share (ORD) price of China Telecom is HKD 4 on HKSE. The spot rate is HKD7.75/USD. The depository bank charges a depository fee of 10 cents per ADR.

(a) Please find the symbol ofChina Telecom Corp on NYSE, the ADR ratio, the ADR program, and the depositary bank.

(b) If the price of the ADR is $52 on NYSE, is there an arbitrage opportunity? If your answer is yes, how do you design the arbitrage strategy and how much is your profit?

(c) If the price of the ADR is $51 on NYSE, is there an arbitrage opportunity? If your answer is yes, how do you design the arbitrage strategy and how much is your profit?

Reference no: EM131021162

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