International Finance Course

1. In the London market, Rolls-Royce stock closed at 0.875 per share. On the same day, the British Pound sterling to the U.S. dollar spot exchange rate was 0.6366/$1.00. Rolls Royce trades as an ADR in the OTC market in the United States. Five underlying Rolls-Royce shares are packaged into one ADR. If the Rolls Royce ADRs were trading at $5.75 when the underlying shares were trading in London at 0.875, ignoring transaction costs, the arbitrage trading profit would be

   1. $0.00.

   2. $1.12.

   3. $2.12.

   4. $3.12.