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

question 79

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

Calculate cutoff values for specific percentiles in a normal distribution.

Understand and apply concepts of the exponential distribution in context.

Perform probability calculations for both sides of the mean in a normal distribution.

Develop proficiency in interpreting statistics in real-world contexts.

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Definitions:

Conversion Cost

The sum of labor and overhead expenses required to convert raw materials into finished goods.

Manufacturing Overhead

Indirect factory-related costs incurred when a product is manufactured, including costs like maintenance, electricity, and equipment depreciation.

Indirect Cost

A cost that cannot be easily and conveniently traced to a specified cost object.

Factory Supervisor

An individual responsible for overseeing the production processes and workers within a manufacturing facility.