Explanation:
Value in dollars of K on LSE = £39 × 1.2658 49.37`
An arbitrageur could purchase K on the LSE for $49.37 and sell it on the NYSE for $50.
Profit per share = $50 − $49.37 = $0.63
Since there is a price difference between the two exchanges after converting currencies, an arbitrage opportunity exists. The arbitrageur would simultaneously buy the stock on the cheaper exchange (LSE) and sell it on the more expensive exchange (NYSE), locking in a risk-free profit of $0.63 per share.
Q.603 Assume stock K trades on the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE). The stock currently trades on the NYSE for $50 and on the LSE for £39. Given the current exchange rate is 1.2658 $/£, determine the amount of arbitrage profit that could possibly be earned.
A
$0.82
B
$1.25
C
$0.63
D
Zero: there's no opportunity for arbitrage
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