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Maximum one-month loss

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Treck Co. expects to pay Ac‚¬200,000 in one month for its imports from Greece. It also expects to receive Ac‚ 250,000 for its exports to Italy in one month. Treck Co. estimates the standard deviation of monthly percentage changes of the euro to be 3 percent over the last 40 months. Assume that these percentage changes are normally distributed. Using the value-at-risk (VAR) method based on a 95% confidence level, what is the maximum one-month loss in dollars if the expected percentage change of the euro during next month is A?€­2%? Assume that the current spot rate of the euro (before considering the maximum one-month loss) is $1.25.

Reference no: EM131016915

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