Benou, Inc., a U.S. exporting firm, expects to receive substantial payments denominated in Indonesian rupiah and Thai baht in 1 month. Based on today's spot rates, dollar value of the funds to be received is estimated at $400 000 for the rupiah and $200 000 for the baht. Thus, Benou is exposed to a currency portfolio weighted 40% in rupiah and 20% in baht. Benou wants to determine the maximu expected 1-month loss due to a potential decline in the value of these currencies, based on a 95% confidence level. Based on data for the last 10 months, it estimates the standard deviation of monthly percentage changes to be 5% for the rupiah and 6% for the baht, and a correlation coefficient of 0.30 between the rupiah and baht. What it is portfolio's standard deviation?

Benou, Inc., a U.S. exporting firm, expects to receive substantial payments denominated in Indonesian rupiah and Thai baht in 1 month. Based on today's spot rates, dollar value of the funds to be received is estimated at $400 000 for the rupiah and $200 000 for the baht. Thus, Benou is exposed to a currency portfolio weighted 40% in rupiah and 20% in baht. Benou wants to determine the maximu expected 1-month loss due to a potential decline in the value of these currencies, based on a 95% confidence level. Based on data for the last 10 months, it estimates the standard deviation of monthly percentage changes to be 5% for the rupiah and 6% for the baht, and a correlation coefficient of 0.30 between the rupiah and baht. What it is portfolio's standard deviation?

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 3BIC

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