Answered: Haines Co. expects to receive 5 million…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter9: Forecasting Exchange Rates

Section: Chapter Questions

Problem 1ST

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Question

Haines Co. expects to receive 5 million euros tomorrow as a result of selling goods to Belgium. Haines estimates the standard deviation of daily percentage changes of the euro to be 1 percent over the last 100 days. Assume that these percentage changes are normally distributed. Using the value-at-risk (VaR) method based on a 95% confidence level, what is the maximum one-day loss (in dollars) if the expected percentage change of the euro tomorrow is 0.5%?

-$110,000
	-$57,500
	-$60,000
	-$75,000
	$-25,000

Features Features Normal distribution is characterized by two parameters, mean (µ) and standard deviation (σ). When graphed, the mean represents the center of the bell curve and the graph is perfectly symmetric about the center. The mean, median, and mode are all equal for a normal distribution. The standard deviation measures the data's spread from the center. The higher the standard deviation, the more the data is spread out and the flatter the bell curve looks. Variance is another commonly used measure of the spread of the distribution and is equal to the square of the standard deviation.

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