(4)The XYZ firm based in NJ expects to receive payments in euro and pound sterling in 30 days. Based on today's spot rate the U.S.$ value of the euro is $2.0 million, and the corresponding value of the pound receipts is $ 3.0 million. Based on the data for the past 6 months, the standard deviation of movements in the euro and pound are 4% and 5% respectively with a correlation coefficient of 0.85. Given this information,

(a)Determine the standard deviation for the portfolio.

(b) Use the result in (a) to estimate possible one month loss due to potential decline in the value of these currencies. Conduct your operations at the 90% confidence level.

(c )Compare the result in (b) with maximum one month loss for each individual currency.