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 ¥1,650 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?