Expected change in the dollars to euro exchange rate

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Reference no: EM131452453

The expected change in the dollars to euro exchange rate is 0.5% per month and the standard deviation of the monthly rate of change is 1.5%. The current spot rate is $1.10 per euro. An importer in the U. S. buys 1 million euros worth of goods from a supplier in Germany with payment occurring one month from now and plans to sell them in the U. S. for $1.15 million. What is the probability that she will incur a loss? [Hint: First determine the exchange rate at which she break even.]

a) Less than 1%

b) Greater than 1%

Reference no: EM131452453

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