1. Your US Company has just purchased a large quantity of parts from a German company for 2.0 million Euros. Your company will make the payment of 2.0 million Euros in 90 days. The current Spot rate on the EUR is $1.14 ($1.14/1 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 8% per year (4.0% 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.

1. What is the expected US dollar cost of the 2.0 million EUR paid in 90 days?

Expected US Dollar = $_______ _____________

2. 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 )

3. What is the 95% Value-at-Risk measured in US dollars for this transaction?

95% Value at Risk = $ ____________