Assessing Currency Volatility Zemart is a U.S. firm that plans to establish an international business in which it will export goods to Mexico (these exports will be denominated in pesos) and to Canada (these exports will be denominated in Canadian dollars) once a month and, therefore, will receive payments once a month. It is concerned about exchange rate risk. Zemart wants to compare the standard deviation of exchange rate movements of these two currencies against the U.S. dollar on a monthly basis. For this reason, the company asks you to perform the following analyses: Estimate the standard deviation of the monthly movements in the Canadian dollar against the U.S. dollar over the last 12 months. Estimate the standard deviation of the monthly movements in the Mexican peso against the U.S. dollar over the last 12 months. Determine which currency is less volatile. Use the website www.oanda.com (or any legitimate website that has currency data) to obtain the end-of-month direct exchange rate of the peso and the Canadian dollar to perform your analysis. Show your work. Use a calculator or a spreadsheet (like Excel) to do the actual computations.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 10, Problem 30QA
Textbook Problem

Assessing Currency Volatility Zemart is a U.S. firm that plans to establish an international business in which it will export goods to Mexico (these exports will be denominated in pesos) and to Canada (these exports will be denominated in Canadian dollars) once a month and, therefore, will receive payments once a month. It is concerned about exchange rate risk. Zemart wants to compare the standard deviation of exchange rate movements of these two currencies against the U.S. dollar on a monthly basis. For this reason, the company asks you to perform the following analyses:

  1. Estimate the standard deviation of the monthly movements in the Canadian dollar against the U.S. dollar over the last 12 months.
  2. Estimate the standard deviation of the monthly movements in the Mexican peso against the U.S. dollar over the last 12 months.
  3. Determine which currency is less volatile. Use the website www.oanda.com (or any legitimate website that has currency data) to obtain the end-of-month direct exchange rate of the peso and the Canadian dollar to perform your analysis. Show your work. Use a calculator or a spreadsheet (like Excel) to do the actual computations.

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