American Depositary Receipts Nestlé S. A. has American depositary receipts listed on the over-the-counter market. Many ADRs listed on U.S. exchanges are for fractional shares. In the case of Nestlé, four ADRs are equal to one registered share of stock. Find the information for Nestlé using the ticker symbol "3NSRGY."
Click on the "Mthly. Adj. Prices" link and find Nestlé’s closing price for April 2006. Assume the exchange rate on that day was $/SF 1.231 and Nestlé shares traded for SF 14.65. Is there an arbitrage opportunity available? If so, how would you take advantage of it?
What exchange rate is necessary to eliminate the arbitrage opportunity available in (a)?
Dividend payments made to ADR shareholders are in U.S. dollars. Suppose you own 90 Nestlé ADRs. Assume the current exchange rate is the rate you calculated in (b). Nestlé declares a dividend of SF 1.15. What U.S. dollar dividend payment will you receive?
