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Volusia,Inc

question 36

Multiple Choice

Volusia,Inc.is a U.S.-based exporting firm that expects to receive payments denominated in both euros and Canadian dollars in one month.Based on today's spot rates,the dollar value of the funds to be received is estimated at $500,000 for the euros and $300,000 for the Canadian dollars.Based on data for the last fifty months,Volusia estimates the standard deviation of monthly percentage changes to be 8 percent for the euro and 3 percent for the Canadian dollar.The correlation coefficient between the euro and the Canadian dollar is 0.30.Assuming an expected percentage change of 0 percent for each currency during the next month,what is the maximum one-month loss of the currency portfolio Use a 95 percent confidence level and assume the monthly percentage changes for each currency are normally distributed.

Definitions:

Suboptimal

A situation or outcome that is not the most efficient or desirable due to being less than the best possible choice.

Human Brain Modularity

The concept that the human brain operates through distinct regions or modules that specialize in different functions.

Heuristics

The brain’s low-energy mental shortcuts for making decisions. They are “fast and frugal” and work well in most situations but in other situations result in systematic errors.

System 1

This refers to a concept in psychology, specifically in the dual-process theory of thought, where System 1 is the fast, instinctive, and emotional way of thinking.