Group members: Eltaj, Sadraddin, Dilsad, Renata, Vugar, Jaheed, Senan
CASE STUDY #2
INTRODUCTION
High Street Global Advisors, a global investment management organization is trying to understand the opportunities presented by the Royal Dutch/Shell pricing discrepancy. This case analyzes the benefits of shares of two twin companies Royal Dutch and Shell. Royal Dutch trades are more actively in the Netherlands and U.S. markets, whereas Shell trades are more actively in the United States. They are getting price benefit mainly from arbitrage opportunities arising from daily stock price difference between the prices of twin equities that cross-listed in different European stock markets. For example, a U.S. (Dutch) investor can buy Royal
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exchange. Level 3 ADRs are able to raise capital and gain substantial visibility in the U.S. financial markets.
Why companies might find it attractive to issue ADRs?
To expand their share holder base
To acknowledge that US share holders are important to them and to create a vehicle that makes it easy for them to hold, trade and settle those securities,
The advantages of ADRs are twofold. For individuals, ADRs are an easy and cost-effective way to buy shares in a foreign company. They save money by reducing administration costs and avoiding foreign taxes on each transaction. Foreign entities like ADRs because they get more U.S. exposure, allowing them to tap into the wealthy North American equities markets.
Why would investors be interested in the method of raising equity capital?
From an investors point of view it’s more transparent, equity exposures are transferred to English and money is transferred in dollars without much of processing troubles.
It creates more poles of stocks.
Creates greater global stocks/equity.
Banks Create a deposited agreement which would make the security available in the US and that security become freely tradable for US investors.
Risks,
Political Risk: The instability of home country who issues ADR affects the ADRs.
Exchange Rate Risk: as we know that ADR shares track the shares in the home country and if a country’s currency is
Page 3: Introduction to the Financial System Page 7: Commercial Banks Page 12: The Share Market and the Corporation Page 15: Corporations Issuing Equity into the Share Market Page 19: Investors in the Share Market Page 24: Short-term Debt Page 28: Medium- to Long-term Debt Page 32: Interest Rate Determination and Forecasting Page 37: The Foreign Exchange Market Page 40: Factors that Influence the Exchange Rate Page 42: Futures Contracts and Forward Rate Agreements Page 47: Options
It also requires more of an investment and commitment by the international company which creates a higher risk. There is also the down side of having difficulty managing local resources.
The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months
The five events are correlated and occurring over approximate five months from 18th August 2010 to 13th December 2010.
Week 1 – Introduction – Financial Accounting (Review) Week 2 – Financial Markets and Net Present Value Week 3 – Present Value Concepts Week 4 – Bond Valuation and Term Structure Theory Week 5 – Valuation of Stocks Week 6 – Risk and Return – Problem Set #1 Due Week 7* – Midterm (Tuesday*) Week 8 - Portfolio Theory Week 9 – Capital Asset Pricing Model Week 10 – Arbitrage Pricing Theory Week 11 – Operation and Efficiency of Capital Markets Week 12 – Course Review – Problem Set #2 Due
In stark contrast, Hooters’ ADR program is a one-sided agenda designed to help the company win arbitration cases and save time and money. The ADR program takes advantage of the company’s superior bargaining power: employees must sign the agreement to arbitrate disputes in order to be eligible for raises, transfers, and promotions. Employees are allowed only five days to review and decide if they will accept or reject the agreement.
The United States has some of the largest financial markets worldwide (Commerce.gov, n.d.). These financial services aid in the financing of manufactured goods and agricultural products which are exported (Commerce.gov, n.d.). There are several advantages for investment in the financial services of the United States (Commerce.gov, n.d.).
There are always advantages and disadvantages to everything. Some advantages of having a National Sales
Our company has completed our investigation into factors that may be leading to increased blood lead levels at your Holland facility. Our company has spent four months
Demographic: ADT’s key demographic is based in the suburban homeowner population, ranging from middle-aged to elderly customers. In addition to residential, there is also a business segment that is seeking to protect itself from loss of assets and inventory as well as confidential information breaches in office facilities.
Arbitrage opportunities exist in both Royal Dutch and Shell. To exploit the price differentials for Royal Dutch, one would buy shares in the European market (for $141.368) and sell them in the market in New York (for $141.375). To exploit the price differentials for Shell, one would buy shares in the European market (for $124.222) and sell them in the market in New York for ($126.554).
Exhibit 7 from the case study describes the currency development in medium term of the GBP and EURO against the dollar. We can observe that the currencies are exposed to high volatility, which means the company may register greater risk
Another disadvantage of a company listing its shares on a stock market in a different country is the idea that electronic trading is making it easy for investors to have access to foreign companies. In the past companies that cross listed would have access to foreign investors and consumers but as electronic trading continues to increase consumers and investors are now able to buy shares to more foreign companies.
Among the most fundamental risks, associated with exchange-traded derivatives, is variable degree of risk. According to Ernst, Koziol, & Schweizer (2011), the transactions in
Great Eastern Toys is a company in Hong Kong that exports a huge percent of its total sales to the North American and European markets and hence is exposed to currency risk. Previously, the company was occupied with expanding their business and the company 's management had never given much attention to currency risk until their recent meeting with their banker. The banker pointed out that the depreciation of the European currencies during the previous two years had resulted in a substantial loss of income. The company 's management was indeed convinced that they should begin to devote more time and manage their currency position. In this report, we are going to explore the different options for Great Eastern Toys to hedge