If Honda ADRs were trading at $31 when the underlying shares were trading in Tokyo at 2,907,
Question:
If Honda ADRs were trading at $31 when the underlying shares were trading in Tokyo at ¥2,907, what could you do to earn a trading profit? Use the information in problem 1, above, to help you and assume that transaction costs are negligible.
Data from Problem 1:
On the Tokyo Stock Exchange, Honda Motor Company stock closed at ¥2,907 per share on Monday, June 6, 2016. Honda trades as and ADR on the NYSE. One underlying Honda share equals one ADR. On June 6, 2016, the ¥/$ spot exchange rate was ¥107.57/$1.00.
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The noarbitrage ADR US dollar price is 2702 If Honda ADRs were trad...View the full answer
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