Alibaba HK Global Depository Shares

Alibaba recently did a Global Depository Share (GDR) IPO in the Hong Kong market.

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· The Hong Kong shares closed at HKD 198.40.

· The shares trade in the US market at USD 200.

· The Hong Kong Dollar trades at 7.83 HKD/USD.

1) With that information, calculate how many Alibaba HK Global Depository Shares are required to purchase one Alibaba American Depository Share (Hint: don’t give me a fractional number of shares)

2) Is there an arbitrage opportunity (long/short one vs. the other ? If so, how can I do it?

Sample Solution