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Assume Nike is exposed to a currency portfolio weighted 50 percent in Canadian dollars and 50...

Assume Nike is exposed to a currency portfolio weighted 50 percent in Canadian dollars and 50 percent in Mexican pesos. Nike estimates the standard deviation of quarterly percentage changes to be 4 percent for the Canadian dollar and 6 percent for the Mexican peso. Also assume that Nike estimates a correlation coefficient of 0.2 between these two currencies.
a) Calculate the portfolio’s standard deviation.
b) Assuming i) normal distribution of the quarterly percentage changes of each currency (and so the same of the portfolio as well), and ii) an expected percentage change of -1 percent for the currency portfolio, calculate the maximum one-quarter loss of the currency portfolio based on a 95 percent confidence level.

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jeff jeffy answered 11 months ago
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