2- Measuring Exposure to Exchange Rate Fluctuations

Assume the following expected cash flows for Saputo Inc for a given period (MM=million):

Currency	Total Inflow	Total Outflow	Exchange Rate
US dollar $	US$ 6.45MM	US$ 3MM	$1.27
Australian dollar$	AUD$ 1.9MM	AUD$ 1.5MM	$0.92
Argentinian peso $	ARP$ 175MM	ARP$ 220MM	$0.012
UK pound	GBP 1MM	GBP 50,000	$1.70

a. Calculate each currencys net transaction exposure (in CAD$). Show your work.

b. What currencys appreciation would benefit Saputo the most, why?

c. What currencys depreciation would benefit Saputo the most, why?

d. Assume:

• Saputo estimates the standard deviation () of 6-month percentage changes of the US dollar to be 3.25%
• the US dollar is expected to depreciate by an 2% against the Canadian dollar during the next 6 months.
• With a 99% confidence interval, the maximum expected 6-month loss is 1.95x the standard deviation.

Use the VaR method to calculate the maximum 6-month loss on Saputos US cash flows (in CAD$). Show your work.