Nippon Computer Manufacturing Company (NCM) wants to create a sponsored ADR program, worth $250 million, to trade

Question:

Nippon Computer Manufacturing Company (NCM) wants to create a sponsored ADR program, worth $250 million, to trade its shares on NASDAQ. Assume that NCM is currently selling on the Tokyo Stock Exchange for ¥1,550 per share, and the current dollar/yen exchange rate is $0.008089/¥ or, equivalently, ¥123.62/$. Metropolis Bank and Trust (MBT) is handling the ADR issue for NCM and has advised NCM that the ideal trading price for high-technology shares on the NASDAQ is about $20 per share (or per ADR).

a. Describe the precise steps MBT must take to create an ADR issue that meets NCM’s preferences.

b. Suppose NCM’s stock price rises from ¥1,550 to ¥1650 per share. If the exchange rate does not change, what will happen to NCM’s ADR price?

c. If the yen depreciates from $0.008089/¥ to $0.008050/¥, but the price of NCM’s shares remains unchanged in yen, what will happen to NCM’s ADR price?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...