Q & A

Irish shares in New York

There are certain Irish companies - for example Ryanair, AIB and Elan - that trade on the Nasdaq or New York Stock Exchange but trade at a different share price. What is the relationship between the share price of an Irish company on a US stock exchange and on the Irish Stock Exchange? Does the share price of an Irish company with a dual listing always perform the same on each stock exchange?

A.S., e-mail

As you rightly assumed, there is a relationship between the stock in any one company which is listed on two separate exchange - for instance Dublin and New York.

The reason the numbers sometimes look out of kilter is because, especially in the US, the companies' shares quite often trade as ADRs - American Depository Receipts.

This means that ordinary shares are grouped together in larger blocks for the purposes of trading on the US market. For instance, Eircom, the most recently floated company on the Irish Stock Exchange, trades in ADRs in the US, each one representing four ordinary shares.

The easiest way to find out the relationship between any one share in its two or more markets is to divide the euro equivalent of the price on any other market by the Irish euro price. You could work in pounds but that necessitates extra work as Irish shares are now all quoted in euros.

Take AIB. Recently, it was trading in the US at $23.94 at a time when the exchange rate between the euro and the dollar was 1.0685. Dividing the dollar price by the exchange rate (23.94/1.0685) gives you 22.4 approximately. At the same time, the share's price in Dublin was €11.86. As you can see, while the figures are not strictly proportional as a whole number multiple, the US price, translated into euros, is close to twice the Irish exchange price for the same stock. And that is the relationship - each AIB ADR in the US is made up of two ordinary shares. Similarly, for Waterford Wedgwood, the multiple is 10; for Ryanair, it is five; and for Elan, one.

That means that Elan shares trade on a one-for-one basis at home and abroad.

The same applies to any other share and any market in which it trades - for instance the recently floated Trintech, which trades on the Nasdaq and the German Neuer Markt.

The close relationship between share prices is evident in the trading in Elan, the Athlone-based pharmaceuticals group which trades predominantly in the US. Because of its size - it is one of the largest companies listed on the Irish exchange - waiting for trades in Dublin would grossly distort the market and its index as such trades would at one fell swoop mirror a long series of moves in the price on the US market.

To counteract this, the market in Dublin takes into account trades in Elan and others in foreign markets, so the price is generally pretty close, whatever the market.

Fixed-rate loan

My husband and I took out a set loan for 10 years six years ago. It now seems silly as we are paying more than 9 per cent interest and the current interest rate is just in excess of 3 per cent. To get out of this loan, we would have to pay £3,000, which we cannot afford. Can you give us any advice?

Ms C.K.,Cavan

Now, you don't say so in as many words, but I am assuming you are talking about a mortgage, because personal loan interest rates are nowhere near as low as mortgage rates and, in any case, a 10-year personal loan would be slightly unusual.

The simple answer is that if you have signed to a 10-year fixed rate, the bank or building society is entirely within its rights to refuse to allow you to break any such contract without reimbursing it for any costs which it might face.

After all, it borrowed the money in the markets six years ago at medium-term rates to lend it to you at that time and it would not have got that money at anything like 3 per cent in 1994.

The way of working these things out is to calculate the cost of breaking the contract - in your case, £3,000 - and then calculate how much you would save over the life of the loan at the new lower rate.

Of course, you will also need to bear in mind when you are working out such figures that the current variable mortgage interest rate of around 3.99 per cent is not guaranteed in the same way your existing rate is. In fact, all the indications are that it will rise in the coming months, although it is unlikely to reach the 9 per cent you are currently paying.

At the end of the day if, as you assert, you cannot afford to buy your way out of your existing fixed rate contract, the figures are all academic and you have little choice but to continue paying off your current loan at the current rate of interest for the next four years.

The only alternative is to see if your bank or building society manager will allow a little flexibility. Some will, some won't, some can't, but it is certainly worth trying. Let's face it, in the current situation, you have nothing to lose.

If it is any consolation, you are not alone. Many of us bought into fixed rate contracts in the aftermath of the ERM crisis and thought we had good deals only to see rates inexorably fall continually since.