Treck Co Expects to Pay €200,000 in One Month for Its

question 46

Multiple Choice

Treck Co. expects to pay €200,000 in one month for its imports from Spain. It also expects to receive €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 percent confidence level, what is the maximum one-month loss in dollars if the expected percentage change of the euro during next month is -2 percent? Assume that the current spot rate of the euro (before considering the maximum one-month loss) is $1.23.

• A) -$38,468
• B) -$21,371
• C) -$17,097
• D) -$4,274

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Definitions:

Milgram

Refers to a series of social psychology experiments conducted by Stanley Milgram, which measured the willingness of participants to obey an authority figure who instructed them to perform acts conflicting with their personal conscience.

Experimenter's Orders

Instructions given by the leader of an experiment, which can significantly influence participants' behavior and responses.

Zimbardo

Refers to Philip Zimbardo, a psychologist noted for his research on social influence, including the famous Stanford prison experiment.

Simulated Prison

A psychological experiment setting designed to study the effects of perceived power, focusing on the behavior of individuals designated as prisoners and guards.