AAA Inc. is a U.S. Firm that has substantial international business in Japan and has cash inflows in Japanese yen. The spot rate of the yen today is $.01. The yen exchange rate has standard deviation of .029185. AAA uses today's spot rate of the yen as its forecast of the spot rate in one month. However, it wants to determine the maximum expected percentage decline in the value of the Japanese yen in one month based on the value at risk (VaR) method and a 95 percent probability. Use the exchange rate information provided to derive the maximum expected decline in the yen over the next month.
AAA Inc. is a U.S. Firm that has substantial international business in Japan and has cash inflows in Japanese yen. The spot rate of the yen today is $.01. The yen exchange rate has standard deviation of .029185. AAA uses today's spot rate of the yen as its forecast of the spot rate in one month. However, it wants to determine the maximum expected percentage decline in the value of the Japanese yen in one month based on the value at risk (VaR) method and a 95 percent probability. Use the exchange rate information provided to derive the maximum expected decline in the yen over the next month.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:AAA Inc. is a U.S. Firm that has substantial
international business in Japan and has cash
inflows in Japanese yen. The spot rate of the yen
today is $.01. The yen exchange rate has standard
deviation of .029185. AAA uses today's spot rate of
the yen as its forecast of the spot rate in one
month. However, it wants to determine the
maximum expected percentage decline in the
value of the Japanese yen in one month based on
the value at risk (VaR) method and a 95 percent
probability. Use the exchange rate information
provided to derive the maximum expected decline
in the yen over the next month.
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