On the Tokyo Stock Exchange, Honda Motor Company stock closed at 3,207 per share on Monday, May 6, 2019. Honda trades as an ADR on the NYSE. One underlying Honda share equals one ADR. On May 6, 2019, the /$ spot exchange rate was 111.07/$1.00. If Honda ADRs were trading at $35, 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.

a	If Honda ADRs were trading at $35, a wise investor might sell short the relatively overvalued ADRs. Since the ADRs are a derivative security, one would expect the ADRs to decrease in price from $35 to $28.87. Assuming this happens, the position could be liquidated for a profit of $35 - $28.87 = $6.13 per ADR.
b	The no-arbitrage ADR U.S. dollar price is $35. If Honda ADRs were trading at $35, a wise investor might sell short the relatively overvalued ADRs. Since the ADRs are a derivative security, one would expect the ADRs to increase in price.
c	Both options are true.
d	Both options are not true.