Billabong is an Australian firm that expects to receive payments denominated in both taka and Ringgit in
Question:
Billabong is an Australian firm that expects to receive payments denominated in both taka and Ringgit in one month. It is expecting 891000 Ringgit and 41650000 taka after a month. Spot rate is estimated to be 1 AUD= 59.5 taka and 1 AUD= 2.97 Ringgit. Based on data for the last 25 months, Billabong estimates the variance of monthly percentage changes to be 30.25 percent for the taka and 12.25 percent for the Ringgit. The correlation coefficient between the taka and Ringgit is perfectly positively correlated. Billabong wants to determine the maximum 1-month loss based on a 94% confidence level which means the lower boundary is 1.88 standard deviations from the expected percentage change in the portfolio. Assuming 0% decline in Taka and Ringgit during the next month and these monthly percentage changes are normally distributed.
What is the maximum 1-month loss for the portfolio?