Quick equity question his, commission, question, purchase

invic

Ruttger, CFA, manages an international fund for Dolores. Ruttger could purchase 10,000 shares of German Industrial Fabricators (GIF) AG in Frankfurt for 25 euros per share, on which he would also pay his broker 0.25 percent commission for the trade. ADRs for GIF trade on the NYSE at USD29.00 - 29.20, and Ruttger would pay a 0.20 percent commission for purchasing in New York. Ruttger notes that euros trade for dollars at 0.84674 - 0.84710 EUR/USD.
If he wishes to minimize his cost to purchase a 10,000 share interest in GIF, Ruttger would pay $292,584 for the ADRs in the U.S. rather than:
a. $295,988 for shares purchased in Frankfurt with the price translated to US dollars.
b. $295,862 for shares purchased in Frankfurt with the price translated to US dollars.
c. $250,625 for shares purchased in Frankfurt.
I got answer b because I used exchange rate of 0.84710 but answer says a because it uses 0.84674.
I was pretty damn sure we use the 0.84710 price. Can someone clarify if this is an error or I just got it wrong?

noel

I also came up with B.

therecruit

to use the 0.84710 price is correct because the stock is sold in US dollars, which would require more Euro when you are taking EUR to buy it.

CFA4Techie

you should use 0.84674 to sell USD and buy EUR to buy stock in Frankfurt where the stock is quoted in EUR

KungFuPanda

To buy it in Germany, you need EUR. The German dealer will offer you LESS EUR for one of your USD..

Walex

Oh…my answer was wrong.
I thought the exchange rate was USD/EUR. It is A.

PieMan

Confusion comes from whether he was buying or selling GIF shares. If he is buying them, he first needs to come up with euros, and pay the ask price (answer A). If he is selling GIF shares, he would need dollars and he would accept the bid price.

eoin

b
I do not think there is any confusion, he is currently holding euro and will sell these to buy $us. Remember, he is not a financial institution so if he is selling he will be offered at the lower rate(he is a price taker) which is $1.1805 us/eur or 0.84674 EUR/USD

himanshumh

I got answer B.

grharmeyer

it is A, not B
you pay 25 x 1.0025 x 10,000 EUR for stock
it is EUR outflow
to convert it into USD you need to do fx spot trade where you have EUR inflow and USD outflow, which means you sell USD and buy EUR as price taker at 0.84674
your net outflow is $295,988