Question

DGMax Corporation is a Canadian firm that has substaintial international business in Japan and has cash inflows in Japanese yen. The yen exchange rate over last 6 months were as follows.
Month	$/yen
January	$                           0.0200
February	$                           0.0215
March	$                           0.0205
April	$                           0.0216
May	$                           0.0228
June	$                           0.0210
However, DGMax wants to determine the maximum expected percentage decline in the value of the Japanese yen in one month based on the value-at-risk (VaR) method and a 95 percent probability. Based on  the exchange rate information provided above, what is the maximum expected decline in the yen over the next month? Choose the best nearest answer.

Question 93 options:

	-5.69%
	-10.64%
	-11.46%
	-0.05%

Answer 1

First, we calculate Return on each month starting from February.

Return = (Current Months Price - Previous Months Price) /Previous   Months Price

Next we will Calculate Standard Deviation of Returns.

We use Std. Dev.S Function in Excel (For Sample Data) alternatively we can use calculator too.

To Calculate SD = Standard Deviation of Returns we take Inputs from past 05 Months Return Feb to June

SD = 6.95%

the maximum expected decline in the yen over = Z Value * SD of Return

Z Value for 95% Probability = 1.65

SD of Return = 6.95%

the maximum expected decline in the yen over next month = 1.65 * 6.95% = 11.46%

Ans : maximum expected decline in the yen over next month 11.46%