Determining an Arbitrage Opportunity

Next, look up the price of a share of Honda stock on the Tokyo Stock Exchange. Next, look up the exchange
rate of Yen/Dollar. Address the following questions:
At the current exchange rate, what is the no-arbitrage U.S. dollar price of one ADR?
When comparing the Honda ADR to the price of a share of Honda stock priced in Yen, does an arbitrage
opportunity exist?
If you were to develop a plan to make a trading profit,
Provide calculations where necessary to support your answer.

Sample Solution

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