Bank of Southern Vermont has determined that its inventory of 20 million euros (€) and 25 million British pounds (£) is subject to market risk. The spot exchange rates are $0.40/€ and $1.28/£, respectively. The σ’s of the spot exchange rates of the € and £, based on the daily changes of spot rates over the past six months, are 65 bp and 45 bp, respectively. Use adverse rate changes in the 90% confidence interval (critical value = 1.65 for 90% confidence interval). Question 1: What is the DEAR of euros (€)? Question 2: What is the DEAR of British pounds (£)?

Bank of Southern Vermont has determined that its inventory of 20 million euros (€) and 25 million British pounds (£) is subject to market risk. The spot exchange rates are $0.40/€ and $1.28/£, respectively. The σ’s of the spot exchange rates of the € and £, based on the daily changes of spot rates over the past six months, are 65 bp and 45 bp, respectively. Use adverse rate changes in the 90% confidence interval (critical value = 1.65 for 90% confidence interval). Question 1: What is the DEAR of euros (€)? Question 2: What is the DEAR of British pounds (£)?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter16: Country Risk Analysis

Section: Chapter Questions

Problem 26QA

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