Magnetronics Inc. a U.S. company owes its Taiwanese supplier NT$205 million in three months. The company wishes to hedge its NT$ payable. The current
spot rate is NT$1 = U.S. $0.03987 and the threemonth forward rate is NT$1 = U.S. $0.04051. Magnetronics can also borrow/lend U.S. dollars at an annualized
interest rate of 12 percent and Taiwanese dollars at an annualized interest rate of 8 percent.
a. What is the U.S. dollar accounting entry for this payable?
b. What is the minimum U.S. dollar cost that Magnetronics can lock in for this payable? Describe the procedure it would use to get this price.
c. At what forward rate would interest rate parity hold given the interest rates?