Skip to content

CS Professional · Strategic Management and Corporate Finance · Sources of Corporate Funding

Sagar Pharma Ltd's shares trade at Rs 600 on the NSE. It sponsors a GDR programme where each GDR represents 5 underlying shares, and the GDRs are priced at USD 40 per GDR. Taking USD 1 = Rs 80, and ignoring costs, what is the GDR price per underlying share in rupees compared with the domestic price?

Each GDR costs 40 x 80 = Rs 3,200, so per underlying share the price is Rs 640. Compared with the domestic price of Rs 600, the GDR trades at a premium of Rs 40 per share.

  1. ARs 640, a premium of Rs 40 over the domestic priceCorrect
  2. BRs 3,200, a premium of Rs 2,600
  3. CRs 560, a discount of Rs 40
  4. DRs 640, a premium of Rs 640

Explanation

One GDR costs 40 x 80 = Rs 3,200. Dividing by 5 shares gives Rs 640 per share. Against Rs 600, this is a premium of Rs 40. Rs 3,200 forgets to divide by the ratio, and Rs 560 reverses the sign.

Did you get it right without looking?

One question tells you little. A timed set on Sources of Corporate Funding shows your real accuracy, how long you take and where you lose marks.

Practise Sources of Corporate FundingFree diagnostic mock

More Sources of Corporate Funding questions