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change in the Mexican peso is 1% during the next quarter, the maximum one-quarter loss is about 65 standard deviations away from the expected percentage change in the U.S. dollar, and that Gilbert estimated the standard deviation of exchange rate ovements of the Mesican peso to be 6 percent over the next 40 quarters. Based on these assumptions, Gilbert's maximum expected one quarter loss due to its ansaction exposure in Mexican pesos over the next quarter is: N-C O 10.9% O10.9%

change in the Mexican peso is 1% during the next quarter, the maximum one-quarter loss is about 65 standard deviations away from the expected percentage change in the U.S. dollar, and that Gilbert estimated the standard deviation of exchange rate ovements of the Mesican peso to be 6 percent over the next 40 quarters. Based on these assumptions, Gilbert's maximum expected one quarter loss due to its ansaction exposure in Mexican pesos over the next quarter is: N-C O 10.9% O10.9%

International Financial Management
International Financial Management
14th Edition
ISBN:9780357130698
Author:Madura
Publisher:Madura
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 49QA
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Gilbert Company, and MNC that has a subsidiary in Mexico, wants to figure out the maximum one-quarter loss due to a potential decline in the Mexican peso's value. Assume that Gilbert believes the expected percentage change in the Mexican peso is -1% during the next quarter, the maximum one-quarter loss is about 1.65 standard deviations away from the expected percentage change in the US. dollar, and that Gilbert estimated the standard deviation of exchange rate movements of the Mexican peso to be 6 percent over the next 40 quarters. Based on these assumptions, Gilbert's maximum expected one quarter loss due to its transaction exposure in Mexican pesos over the next quarter is: O S% O 10.9% O 10.9%
Transcribed Image Text:Gilbert Company, and MNC that has a subsidiary in Mexico, wants to figure out the maximum one-quarter loss due to a potential decline in the Mexican peso's value. Assume that Gilbert believes the expected percentage change in the Mexican peso is -1% during the next quarter, the maximum one-quarter loss is about 1.65 standard deviations away from the expected percentage change in the US. dollar, and that Gilbert estimated the standard deviation of exchange rate movements of the Mexican peso to be 6 percent over the next 40 quarters. Based on these assumptions, Gilbert's maximum expected one quarter loss due to its transaction exposure in Mexican pesos over the next quarter is: O S% O 10.9% O 10.9%
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