Question
Highland Co. expects to receive $5,000,000 euros tomorrow as a result of selling goods to the Netherlands. Highland estimates the standard deviation of daily percentage
Highland Co. expects to receive $5,000,000 euros tomorrow as a result of selling goods to the Netherlands. Highland estimates the standard deviation of daily percentage changes of the euro to be 1 percent over the last 100 days. Assume that these percentage changes are normally distributed. Using the value-at-risk (VAR) methods based on a 95% confidence level, what is the maximum one-day loss indollars if the expected percentage change of the euro tomorrow is 0.005? The current spot rate of the euro (before considering the maximum one-day loss) is $1.05.
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