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The East Asiatic Company (EAC), a Danish company with subsidiaries all over 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 (B) debt. The treasuer of EAC-Thailand is considering a one-year bank loan for $250,000. The current spot rate is B32.06/$, and the dollar-based interest is 6.75% for the one year period. One year loans are 12.00% in baht.

          Assumptions                                            Value 

Current spot rate, Thai baht/$                           32.06  

Expected Thai inflation                                       4.62%  

Expected dollar inflation                                     1.930%  

Loan principal in U.S. dollars                            $250,000  

Thai baht interest rate, 1-year loan                   12.000%  

US dollar interest rate, 1-year loan                    6.750%


Given this information what would PPP forecast the future spot rate of baht/$? Answer using two decimal places.

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Current spot rate, Thai baht/$ =32.06 Future spot rate ( using... View the full answer

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