Question: (a)Bendix co., based in New Jersey, will receive 15 million pesos tomorrow for its consultancy services to a firm in Mexico. It wants to determine,

(a)Bendix co., based in New Jersey, will receive 15 million pesos tomorrow for its consultancy services to a firm in Mexico. It wants to determine, with 85% confidence level, the maximum one-day loss due to potential depreciation of the peso. Bendix estimates the standard deviation of the daily movement of the peso to be 1.5% over the past 120 days. If these daily movements are normally distributed and assuming an expected change of 1%, determine the expected dollar loss for the Bendix co. The current spot rate for the peso is $0.05

(b)How will your result in (a) be affected if the standard deviation of the daily movement in the peso is 2% and the confidence level rises to 95%?

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