a. 1) (8 pts) Your US Company has just sold a large quantity of parts from a German company for 5.0 million Euros. Your company will not recieve the payment of 5.0 million Euros until 90 days from now once the parts have been inspected. The current Spot rate on the EUR is $1.19 ($1.19/1 EUR) Your company has assumed that the expected spot rate on the EUR in 90 days will be the same as the spot price today (The expected change in the spot rate over the next 90 days is 0.0%). However, the standard deviation of the expected change in the spot rate is 10% per year (5.0% per 90 days). Remember that a 5% one-sided tail is approximately 1.65 standard deviations away from the mean. Assume this transaction is the only international transaction your company is engaged in. What is the expected US dollar amount of the 5.0 million EUR to be recieved in 90 days? 00,000 x 1-19- Expected US Dollar = $_5950000 b. Are you worried that the Euro will strengthen or weaken over the next 90 days if you leave the position "unhedged" Worried that Euro will (strengthen (weaken) 62 What is the 95% "worst case" for the exchange rate of the Euro in 90 days according to your assumptions? 1 - C. = 0.05=0.0825+1 5x1-19- 95% Worst Case Euro will be trading at $. 1.288175 /1 Euro d. What is the 95% Value-at-Risk measured in US dollars for this transaction? 500DOOOX 1.288175 - 6440875 95% Yalye at Risk = $ 490875 a. 1) (8 pts) Your US Company has just sold a large quantity of parts from a German company for 5.0 million Euros. Your company will not recieve the payment of 5.0 million Euros until 90 days from now once the parts have been inspected. The current Spot rate on the EUR is $1.19 ($1.19/1 EUR) Your company has assumed that the expected spot rate on the EUR in 90 days will be the same as the spot price today (The expected change in the spot rate over the next 90 days is 0.0%). However, the standard deviation of the expected change in the spot rate is 10% per year (5.0% per 90 days). Remember that a 5% one-sided tail is approximately 1.65 standard deviations away from the mean. Assume this transaction is the only international transaction your company is engaged in. What is the expected US dollar amount of the 5.0 million EUR to be recieved in 90 days? 00,000 x 1-19- Expected US Dollar = $_5950000 b. Are you worried that the Euro will strengthen or weaken over the next 90 days if you leave the position "unhedged" Worried that Euro will (strengthen (weaken) 62 What is the 95% "worst case" for the exchange rate of the Euro in 90 days according to your assumptions? 1 - C. = 0.05=0.0825+1 5x1-19- 95% Worst Case Euro will be trading at $. 1.288175 /1 Euro d. What is the 95% Value-at-Risk measured in US dollars for this transaction? 500DOOOX 1.288175 - 6440875 95% Yalye at Risk = $ 490875
