Solution-Determine the maximum one-month loss

Determine the maximum one-month loss

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Reference no: EM133068037

Vezas corporation operates in three different markets - Canada, New Zealand, and Mexico. Exactly one month from now, the company expects to receive substantial amounts in all three currencies. At the same time, the company is also required to make a significant sum of payments in the same currencies. The following table summarizes firms committed receipts and payments in one month.

Currency	Total Inflow	Total Outflow
Canadian dollars (C$)	57662000	10134000
New Zealand dollars (NZ$)	5352000	2845000
Mexican pesos (MXP)	3138000	15715000

Based on data for the last 50 months, it estimates the standard deviation of monthly percentage changes exchange rate for each currency against USD is produced below.

Currency	Standard Deviation	Spot Rate
Canadian dollars (C$)/US$	2.90%	$0.81
New Zealand dollars (NZ$) / US$	3.50%	$0.72
Mexican pesos (MXP) / US$	4.90%	$0.05

Moreover, the correlation coefficient among these currencies is produced below.

Currency	Canadian $	New Zealand $	Mexican Pesos
Canadian dollars	1
New Zealand dollars	0.74	1
Mexican pesos	0.47	-0.26	1

Based on the above information answer the following questions:

Using a 95% confidence level determine the maximum one-month loss for the committed receipts or payment individually in each currency
Determine the maximum one-month loss for the company from the portfolio of receipts
Is there any difference between total portfolio loss and the loss derived by adding the individual currency losses? Explain such differences

Reference no: EM133068037

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Determine the maximum one-month loss

Reference no: EM133068037

Reference no: EM133068037

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