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5. PPP, fund cost, forward hedging): The financial manager of Trident-Thailand is considering a one- year bank loan for $1 million. The current spot exchange

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5. PPP, fund cost, forward hedging): The financial manager of Trident-Thailand is considering a one- year bank loan for $1 million. The current spot exchange rate is B32.62/S, and the dollar-based interest is 6.0% for the one-year period. The expected one-year inflation rtes are 5.0% and 2.0% in Thailand and the United States, respectively. (a) What would the exchange rate (B/S) be in one year based on PPP? (To four decimal places) (b) What would the effective cost of funds (%) be in Thai baht terms based on PPP? (Note: the effective cost of funds (Thai baht needed to pay in one year(the current loan in Thai baht terms)-1) (c) Ignoring PPP but analyzing the possible currency weakness, Trident's FX advisors believe that the value of the Thai baht could be down against the dollar by 12% over the coming year, what would the effective cost of funds (%) be in Thai baht terms based on the depreciation of 12%? (d) If the spot rate of Thai Baht in one year depreciates by 12%, what is the foreign exchange loss (in Thai baht terms) incurred on the loan of S1 million due to the change in exchange rate? (e) If one-year forward rate = B33.90/$ when borrowing the loan of $1 million, with the exact forward hedging, should Trident buy or sell dollar forward contracts? (f) In part (e), what would the effective cost of funds (%) be in Thai baht terms based on the exact forward hedging

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