In: Finance
A Multinational corporation based in Mexico will receive $5 million tomorrow for its exports to an importer in the US. It wants to determine, with 90 % confidence, its maximum one-day loss based on a potential decline in the value of the dollar. The firm’s estimate of the standard deviation of the daily percentage change in the dollar during the previous 100 days is 2.1%. Given that the daily percentage changes are normally distributed and the spot rate for the peso is $0.10, find
(a) The value of the dollar based on the maximum one-day loss if the firm expects the dollar to fall 0.2% fall.
(b) The potential peso loss for the MNC if the percentage variability in the daily movements of the dollar falls to 1.5%.
(c) The potential dollar loss if the level of confidence is raised to 95% and the percentage variability of the dollar is increases to 2.5%