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 estimation of the dollar dependent on the examination one-day misfortune if the firm anticipates that the dollar should fall 0.2% is determined as under

the sum is $5 million deviations 2.1 %, assume expected esteem is 100 at that point deduct = 100-2.1=97.90

$5*97.90=4.90 $ will get however on the off chance that falls is 0.2%, at that point, it comes = 100-0.2=99.80%

$5*99.80%=$ 4.99 million answers.

(B) on the off chance that the potential misfortune for mnc is tumbled to 1.5%, at that point condition 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 misfortune (answer)

(C) if the certainty level raised 95% and % fluctuation is going up 2.5%

= 100-2.50=97.50%

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

=$ 0.122 million (Answer)