Answer:
$58,075
Step-by-step explanation:
Given:
Expected amount to be received = 5 million euros
Standard deviation of daily percentage change of euros, σ = 1%
Confidence level = 95%
Expected percentage change of the euro tomorrow = 0.5 percent
let,
the current spot rate of the euro (before considering the maximum one-day loss = $1.01
Now,
The maximum one-day percentage loss
= Expected change of euro - 1.65 × σ
(here 1.65 is constant for 95% confidence)
= 0.5% - 1.65 × 1%
= -1.15% (Here negative sign depicts the loss)
Therefore,
maximum one-day loss in dollars
= maximum one-day percentage loss × Exchange rate × Amount to be received
= -1.15% × $1.01 × 5 million euros
= -0.0115 × 1.01 × 5,000,000
= -$58,075 (Here negative sign depicts the loss)
