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Question - Assume the following expected cash flows for Saputo Inc for a given period (MM=million):
Currency
Total Inflow
Total Outflow
Exchange Rate
US dollar $
US$ 6.45MM
US$ 3MM
$1.27
Australian dollar$
AUD$ 1.9MM
AUD$ 1.5MM
$0.92
Argentinian peso $
ARP$ 175MM
ARP$ 220MM
$0.012
UK pound £
GBP£ 1MM
GBP£ 50,000
$1.70
a. Calculate each currency's net transaction exposure (in CAD$). Show your work.
b. What currency's appreciation would benefit Saputo the most, why?
c. What currency's depreciation would benefit Saputo the most, why?
d. Assume:
Saputo estimates the standard deviation (σ) of 6-month percentage changes of the US dollar to be 3.25% the US dollar is expected to depreciate by an 2% against the Canadian dollar during the next 6 months.
With a 99% confidence interval, the maximum expected 6-month loss is 1.95x the standard deviation.
Use the VaR method to calculate the maximum 6-month loss on Saputo's US cash flows (in CAD$). Show your work.
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