The confidence intervals for each currency can be applied to the expected book revenues to derive confidence intervals in U.S. dollars to be received from each country. Complete this assignment for Whaler Publishing Company, and also rank the currencies in terms of uncertainty (degree of volatility). Since the exchange rate data provided are real, the analysis will indicate (1) how volatile currencies can be, (2) how much more volatile some currencies are than others, and (3) how estimated revenues can be subject to a high degree of uncer- tainty as a result of uncertain exchange rates. (If you use a spreadsheet to do this case, you may want to retain it because the next chapters case is an extension of this one.)
CHAPTER 9 WHALER PUBLISHING COMPANY Forecasting Exchange Rates Whaler Publishing Company specialines in producing totbooks in the United Stales and marketing these books in foreign universities where the English language is used. Its sales ase invoiced in the currency of the countzy where the lextbooks are sold. The expected revenues from textbooks sold to university bookstores are shown in Exhit B. Whaler is comfortable with the estimated foreign currency revenues in each country. However, it is uncertain about the US dollar revenses to be received from each country At this time (which is the beginming of year 16) Whaler is uing today's spot rate as its best pues of the eschange rate at which the revenues from cach country will be con- verted into U.S dollars at the end of this year (which implies a nero perontage changs in the value of each currency). Yet it recognices the potential error associated with this type of forecast. Therefore, it desires to incorporale the risk surrounding each curnency forecast by creating confidence intervals for each cunrency. First, it must derive the annual percentape change in the eschange rabe over each of the last 15 years for each currency to drive a andard deviation in the percentage dange of each foreign cur- rency. By assuming that the percentage changes in exchange rates are noemally distrib- uted, it plans to develop two ranges of forecasts for the annual percentage change in each currency: (1) one standard deviation in each disection from its best guess to develop 68 percent confidence interval, and (2) two standard deviations in each direction from its best gaess to develop a 95 percent confidence interval. These confidence intervals can them be applied to boday's spot rates to develop confidence intervals for the fature Exhibit 0.1 Expected Revenues trom, Testboks Sold 10 University Bookstores EVENUES BOOKSTORES S IN CURREN New Zealand dllas IN25 Pounds United Kingdom Copyright 2013 Cenpage Leaning All Rights Reserved May not be copied, scansed, or duplicated, in whole or is part Appendx B Supplemental Cases 669 The exchange tates at the beginning of each o the last 16 years for each curency with respect to the US. dollar) are shown here AN o 2571 CHAPTER 9 WHALER PUBLISHING COMPANY Forecasting Exchange Rates Whaler Publishing Company specialines in producing totbooks in the United Stales and marketing these books in foreign universities where the English language is used. Its sales ase invoiced in the currency of the countzy where the lextbooks are sold. The expected revenues from textbooks sold to university bookstores are shown in Exhit B. Whaler is comfortable with the estimated foreign currency revenues in each country. However, it is uncertain about the US dollar revenses to be received from each country At this time (which is the beginming of year 16) Whaler is uing today's spot rate as its best pues of the eschange rate at which the revenues from cach country will be con- verted into U.S dollars at the end of this year (which implies a nero perontage changs in the value of each currency). Yet it recognices the potential error associated with this type of forecast. Therefore, it desires to incorporale the risk surrounding each curnency forecast by creating confidence intervals for each cunrency. First, it must derive the annual percentape change in the eschange rabe over each of the last 15 years for each currency to drive a andard deviation in the percentage dange of each foreign cur- rency. By assuming that the percentage changes in exchange rates are noemally distrib- uted, it plans to develop two ranges of forecasts for the annual percentage change in each currency: (1) one standard deviation in each disection from its best guess to develop 68 percent confidence interval, and (2) two standard deviations in each direction from its best gaess to develop a 95 percent confidence interval. These confidence intervals can them be applied to boday's spot rates to develop confidence intervals for the fature Exhibit 0.1 Expected Revenues trom, Testboks Sold 10 University Bookstores EVENUES BOOKSTORES S IN CURREN New Zealand dllas IN25 Pounds United Kingdom Copyright 2013 Cenpage Leaning All Rights Reserved May not be copied, scansed, or duplicated, in whole or is part Appendx B Supplemental Cases 669 The exchange tates at the beginning of each o the last 16 years for each curency with respect to the US. dollar) are shown here AN o 2571
