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Arbitrage Opportunity (FIAT Stock)

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On the Milan boards, Fiat stock closed at EUR5.84 per share on Thursday, March 3, 2005. Fiat trades as an ADR on the NYSE. One underlying Fiat share equals one ADR. On March 3, the S/EUR spot exchange rate was $1.3112/EUR1.00. If Fiat ADR's were trading at $7 when the underlying shares were trading in Milan at EUR5.84, what could you do to earn a trading profit? Assume transaction costs are negligible.

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There is an arbitrage opportunity since the asset is trading at different ...

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The solution discusses what could you do to earn a trading profit.

$2.19