The treasurer of a Dutch company operating in Thailand considers a one-year bank loan of $350,000 (US) with an interest rate of 8.885% (dollar based). The current spot rate is B42.84/$ and a local loan in Thai Baht (B) would carry a rate of 14%. Expected inflation rates are 4.5% and 2.2% in Thailand and the United States, respectively, for the coming year. According to purchasing power parity, what is the effective cost of funds in Thai baht terms?

9.0%

11.5%

12.5%

14.0%

The treasurer of a Dutch company operating in Thailand considers a one-year bank loan of $350,000 (US) with an interest rate of 8.885% (dollar based). The current spot rate is B42.84/$ and a local loan in Thai Baht (B) would carry a rate of 14%. Expected inflation rates are 4.5% and 2.2% in Thailand and the United States, respectively, for the coming year. If Thailand devalues the baht by 5%, what is the effective cost of funds in Thai baht terms?

8.30%

9.00%

11.50%

12.50%

With $2,000,000 to invest, a spot rate of 71.635kr/$, a three-month forward rate of 72.9127kr/$, an expected spot of 70kr/$, a US$ three-month interest rate of 4.80%, and an Icelandic krona three-month interest rate of 12.020%, using uncovered interest arbitrage, can a position yield a return in excess of 4%?

No, it is not possible.

Yes, the yield is 4.21%

Yes, the yield is 4.80%

Yes, the yield is 5.41%