Question
In: Finance
A Multinational corporation based in Mexico will receive $5 million tomorrow for its exports to an...
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%
Solutions
jeff jeffy answered 1 year agoRelated Solutions
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Lion Star Inc. will receive 50 million Australian dollars (AUD) tomorrow. Current FX rate = $0.64/Euro....
Lion Star Inc. will
receive
50
million
Australian
dollars (AUD)
tomorrow. Current FX rate = $0.64/Euro.
Standard deviation of daily percentage change of
AUD
is 0.76
% over the last 200
days. Assume normal distribution, and the expected % change
in
Euro
is 0.15%.
A)
What
is the maximum one-day loss
(in % and in dollar amount)
with 99% confidence level?
B) What is the maximum one-day loss
(in % and in dollar amount)
with 95% confidence level?
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+1.54%
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