Exhibit 10-2 Volusia, Inc. Is a U.S.-Based Exporting Firm That Expects to Expects

question 12

Multiple Choice

Exhibit 10-2
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.
-Refer to Exhibit 10-2. 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.

• A) -9.00%.
• B) -30.00%.
• C) -5.00%.
• D) none of the above

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Definitions:

Suspension

A mode of sediment transport in which water or wind picks up and carries the sediment as floating particles.

Deposition

The process where material is laid down or settles in a new location.

Gradient

A measure of the steepness or incline of a surface, often expressed as a ratio of vertical rise to horizontal distance.

Water Velocity

The speed at which water flows in a given direction within a river, stream, or other body of water.