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xyz is an exporting company based in new york. it expects to receive substantial payment domination...

xyz is an exporting company based in new york. it expects to receive substantial payment domination in UK pounds and euros. based on today's spot rate the dollar value of funds to be received in pounds is $600000 and the dollar value of funds to be received in euros is $400000. the company wants to determine the maximum expected one-month loss due to a potential decline in the value of those two currencies ( based on a 95% confidence level ). using the data for the past 20 months the firm found the standard deviation of monthly percentage changes to be 7% for the pound and 8% for the euro. it also estimates a correlation coefficient of 0.50 between both currencies.if the monthly percentage changes for each currency are normally distributed and assuming the expected percentage change of zero for each currency during the next month (and this also implies an expected change of zero for the portfolio) find:

A- the maximum 1- month loss of the currency portfolio ( hint: first find the portfolio standard deviation )

b- the maximum 1- month loss of the pound

c- the maximum 1- month loss of the euro

Math   Statistics-And-Probability   
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