Estimate company maximum expected loss

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Assume that you work for a company that estimates its net cash ?ows next quarter from Morocco will be $9,000,000USD (i.e._, after converting from MAD to USD) and from New Zealand will be $3,000,000USD (i.e., after converting from NZD to USD). You estimate that the standard deviation of quarterly percentage changes is 6% for the Moroccan dirham (MAD) and 3% for the New Zealand dollar (NZD). You also estimate that the correlation between the quarterly percentage changes of these two currencies is 0.2 and expect a 1% decrease for your company's currency portfolio formed from these two currencies against the U.S. dollar over the next quarter. Use the value at risk (VaR) method to estimate your company's maximum expected loss in percentage terms over the next quarter due to its transaction exposure to this currency portfolio.

Reference no: EM133071605

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