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Expected percentage change of the pound

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Treck Co. expects to pay £350,000 in one month for its imports from Northern Ireland. It also expects to receive £325,000 for its exports to Scotland in one month. Treck Co. estimates the standard deviation of monthly percentage changes of the pound to be 2% percent over the last 3 years. Assume that these percentage changes are normally distributed. Using the value-at-risk (VaR) method based on a 95 percent confidence level, what is the maximum one-month loss in dollars if the expected percentage change of the pound during next month is -2 percent? The current spot rate of the pound (before considering the maximum one-month loss) is $1.38.

Reference no: EM132043601

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