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On the Tokyo Stock Exchange, Honda Motor Company stock closed at 2,717 per share on Thursday, July 29, 2010. Honda trades as and ADR on
On the Tokyo Stock Exchange, Honda Motor Company stock closed at 2,717 per share on Thursday, July 29, 2010. Honda trades as and ADR on the NYSE. One underlying Honda share equals one ADR. On July, 29, 2010, the /$ spot exchange rate was 86.7750/$1.00. 4. a. At this exchange rate, what is the no-arbitrage U.S. dollar price of one ADR? By comparison, Honda ADRs traded at $30.96. Do you think an arbitrage opportunity exists? Now assume that there are no transaction costs. If Honda ADRs were trading at $34 when the underlying shares were trading in Tokyo at 2,717, what exact strategy could you undertake to earn a trading profit? b. C
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