East Asiaticlong dashThailand. The East Asiatic Company$($EAC$),$ a Danish company with subsidiaries throughout$$ Asia, has been funding its Bangkok subsidiary primarily with U$.$S$.$ dollar debt because of the cost and availability of dollar capital as opposed to Thai$$ baht$-$denominated $($THB$)$ debt. The treasurer of$$ EAC$-$Thailand is considering a$1-$year bank loan for USD $252$ comma $000.$ The current spot rate is THB$32\mathrm{.}03=$ USD$1\mathrm{.}00,$ and the$$ dollar$-$based interest is $6\mathrm{.}71\%$ for the$1-$year period.$1-$year loans are $11\mathrm{.}97\%$ in baht.

a$.$ Assuming expected inflation rates for the coming year of $4\mathrm{.}1\%$ and $1\mathrm{.}25\%$ in Thailand and the United$$ States, respectively, according to purchase power$$ parity, what would be the effective cost of funds in Thai baht$$ terms?

b$.$ If$$ EAC's foreign exchange advisers believe strongly that the Thai government wants to push the value of the baht down against the dollar by $5\%$ over the coming year$($to promote its export competitiveness in dollar$$ markets$),$ what might be the effective cost of funds in baht$$ terms?

c$.$ If EAC could borrow Thai baht at $13\mathrm{.}00\%$ per$$ annum, would this be cheaper than either part$($a$)$ or part$($b$)?$