Question: The nation of Olecarl located in the South Pacific has

The nation of Olecarl, located in the South Pacific, has asked you to analyze international trade patterns. You first discover that each year it exports 10 units and imports 10 units of wonderful stuff. The price of exports is a random variable with a mean of 100 and a variance of 100. The price of imports is a random variable with a mean of 90 and a variance of 400. In addition, you discover that the prices of imports and exports have a correlation of r = -0.40. The prices of both exports and imports follow a normal probability density function. Define the balance of trade as the difference between the total revenue from exports and the total cost of imports.
a. What are the mean and variance of the balance of trade?
b. What is the probability that the balance of trade is negative?

  • CreatedJuly 07, 2015
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