Suppose that Colorado Co., a U.S. based MNC, seeks to assess its transaction exposure using the value-at-nsk (VaR) method over the next quarter. It is primarily concerned about its exposure in euros, as it has determined that the remainder of its portfolio is such that the effects of currency fluctuations typically offset. Suppose that, based on historical data, it has determined that the expected change in the value of the euro is -2.00% over the next quarter and that the standard deviation of these changes is 3.00%. Colorado assumes that these changes are normally distributed, such that the maximum quarterly loss lies within 1.65 standard deviations below the expected change with 95% confidence. Under this scenario, the maximum one-quarter loss due to transaction exposure is approximately with 95% confidence. Now suppose that, based on updated data, the standard deviation of changes in the euro is actually -2,00%. All else remains unchanged. Under this scenano the maximum one-quarter loss due to transaction exposure is approximately with 95% confidence. Based on these results, the larger standard deviation of the change in the euro, the the maximum loss will be sure is approximately with 95% CC es in the euro is actuall 2.95% All else remains un ure is approximately -0.10% with 95% confi. -40.40% ro, the -6.95% um loss will be. hange in the value of the euro is -2.00% over the n se changes are normally distributed, such that the confidence. -20.20% re is approximately 7.90% with 95% confic -11.90% in the euro is actual All else remains uncha e is approximately ho with 95% confider value of the euro is -2.009 nes that these changes are normally distributed, su ne with 95% confidence. tion exposure is approximately with of changes in the euro is actually -2.00%. All else rei larger on exposure is ap smaller with 9 in the euro, the the maximum loss wil h Suppose that Colorado Co., a U.S. based MNC, seeks to assess its transaction exposure using the value-at-nsk (VaR) method over the next quarter. It is primarily concerned about its exposure in euros, as it has determined that the remainder of its portfolio is such that the effects of currency fluctuations typically offset. Suppose that, based on historical data, it has determined that the expected change in the value of the euro is -2.00% over the next quarter and that the standard deviation of these changes is 3.00%. Colorado assumes that these changes are normally distributed, such that the maximum quarterly loss lies within 1.65 standard deviations below the expected change with 95% confidence. Under this scenario, the maximum one-quarter loss due to transaction exposure is approximately with 95% confidence. Now suppose that, based on updated data, the standard deviation of changes in the euro is actually -2,00%. All else remains unchanged. Under this scenano the maximum one-quarter loss due to transaction exposure is approximately with 95% confidence. Based on these results, the larger standard deviation of the change in the euro, the the maximum loss will be sure is approximately with 95% CC es in the euro is actuall 2.95% All else remains un ure is approximately -0.10% with 95% confi. -40.40% ro, the -6.95% um loss will be. hange in the value of the euro is -2.00% over the n se changes are normally distributed, such that the confidence. -20.20% re is approximately 7.90% with 95% confic -11.90% in the euro is actual All else remains uncha e is approximately ho with 95% confider value of the euro is -2.009 nes that these changes are normally distributed, su ne with 95% confidence. tion exposure is approximately with of changes in the euro is actually -2.00%. All else rei larger on exposure is ap smaller with 9 in the euro, the the maximum loss wil h
