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

question 15

Multiple Choice

Treck Co. expects to pay €200,000 in one month for its imports from Greece. 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% confidence level, what is the maximum one-month loss in dollars if the expected percentage change of the euro during next month is-2%? 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:

Main Effect

In statistical analysis, the direct impact of an independent variable on a dependent variable.

Interaction Effect

Occurs when the effect of one independent variable on the dependent variable differs depending on the level of another independent variable.

Scientific Inquiry

The diverse ways in which scientists study the natural world and propose explanations based on evidence gathered.

Evolved Theory

A theoretical framework that interprets behaviors and physical traits as adaptations shaped by evolutionary processes.