A German corporate investor wishes to decrease its exposure to Chinese by selling 65,000 share of Metro Cash & Carry stocks that is currently in this firm's portfolio. This firm trades on HKGSE. A Hongkong-based-broker quotes the HKG dollar (HK$) price of share of this firm at 94.25-99.05 with a commission of 0.15% of the transaction value. The HKGSE charges a tax of 0.25% of the value traded from the seller. Current exchange rate :HK$ quoted at HSBC (Hongkong Shanghai Banking Corporation) is 7.8905-7.9910. (a) Calculate the execution costs German corporate investor should pay in HK$? Selling price in HK$: 65,000 x 94.25 = HK$6,126,250.- Execution costs = 0.15% commission + 0.25% tax = HK$6,126,250 x 0.35% = HK$21,441.88 HK$21,441.88 is the execution costs in HK$ (b) How many will the German investor receive on selling the share? Net selling price in HK$ = (6,126,250 21,441.86) = HK$6,104,809.12 = Euro (6,126,250 - 21,441.86): 7.9910 = 763,960.60 (c) What is the rate of return of this investment knowing that the ex-rate :HK$ at initial investment period was at 8.0020-8.0153 Buying price in : Vo= (65,000 x 99.05):8.0153 = 803,245.- V1-VO Rate of return %R = VO 763,960.60-803,245 803,245 0.04891 or -4.89% (d) Describe the round-trip trade the German corporation invested in Metro Cash & Carry shares at HKGSE by drawing? SELL 65,000 shares S 7.8905-7.9910 P = Po 94.25-99.05 Price does not change BUY 65,000 shares Po So 94.25-99.05 8.0020-8.0153 Based on (c) result, Investor lost 39,285 or - 4.89% rate of return on this investment.