Question

(3)A Multina for its exports to an importer in the US. It wants to determine with 90 % confidence its maximum one-day loss based on a potential decline in the value of the dollar. tional corporation based in Mexico will receive S5 million tomorrow The firm's estimate of the standard deviation of the daily percentage change in the dollar during the previous 100 days is 2.1%. Given that the daily percentage changes are normally distributed and the spot rate for the peso is $0.10, find (a) The value of the dollar based on the maximum one-day loss if the firm expects the dollar to fall 0.2% fall. (b) The potential peso loss for the MNC if the percentage variability in the daily movements of the dollar falls to 1.5%. (c) The potential dollar loss if the level of confidence is raised to 95% and the percentage variability of the dollar is increases to 2.5%

Answer 1

(A)the value of the dollar based on the examinatiom one day loss if the firm expect the dollar to fall 0.2% is calculated as under

the amount is $5 million deviation 2.1% , suppose expected value is 100 then deduct = 100-2.1=97.90

$5*97.90=4.90 $ will received but if falls is 0.2% then it comes = 100-0.2=99.80%

$5*99.80%=$ 4.99 million answer.

(B) if the potential loss for mnc is falls to 1.5% then equation will be as under =

=100-1.50=98.5%

=$5*98.50%= $4.93 million spot rate is $ 0.10

=$4.93*0.10%= $ 0.00493 million loss (answer)

(C) if the confidence level raised 95% and % variability is goes up 2.5%

= 100-2.50=97.50%

$5*97.50%=$4.88 million @ 2.5%

=$ 0.122 million (Answer)