Final answer:
A pilot flying on a heading of 360° and instructed about traffic at 10 o'clock should look to the northwest (option 2), as this corresponds to the front-left direction from the pilot's perspective in the cockpit.
Step-by-step explanation:
If a pilot is advised by ATC that there is traffic located at 10 o'clock and the pilot is currently flying on a heading of 360° (due north), the pilot should look to the northwest. When given such instructions, the '10 o'clock' position references a direction that can be visualized by picturing the face of a clock laid over the top of the cockpit. The number 12 represents the aircraft's nose, and thus 10 o'clock is to the front and left from the pilot's perspective.
In this case, because the advised traffic is southbound, and the pilot's current heading is due north, the position of 10 o'clock indicates the appropriate direction to search for traffic is to the northwest.