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. By comparison, Honda ADRs traded at $29. Do you think an arbitrage opportunity exists?

a

All options.

b

It is unlikely that an arbitrage opportunity exists after transaction costs. The slight difference in prices is likely accounted for by a difference in information contained in prices since the Tokyo Stock Exchange closes several hours before the NYSE.

c

No option.

d

It is likely that an arbitrage opportunity exists after transaction costs. The difference in prices is significant since the Tokyo Stock Exchange closes several hours before the NYSE.