All work must be shown.

Problem #$1$

Assume that XYZ Company estimates that the standard deviation of quarterly percent changes of the

Pound to be $2\mathrm{.}5\%$ over the last $30$ quarters. The Pound is expected to depreciate by $0\mathrm{.}75\%$ over the next

quarter. Also, ABC estimates that the standard deviation of quarterly percent changes of the Australian

Dollar to be $7\%$ over the last $30$ quarters. The Australian Dollar is expected to depreciate by $2\mathrm{.}75\%$ over

the next quarter.

In both cases, XYZ Co$.$ expects the U$.$S$.$ dollar value of the Pound to be $$25,000,000$ and the Australian

Dollar to be $$14,300,000.$

Assume that XYZ estimates Value at Risk $($VAR$)($maximum loss$)$ using the $99\%$ confidence level,

how much is their total expected maximum loss for the Pound over the next quarter?

Assume that ABC estimates Value at Risk $($VAR$)($maximum loss$)$ using the $99\%$ confidence level,

how much is their total expected maximum loss for the Australian Dollar over the next quarter?