Telex corporation operates in three different markets - Canada, New Zealand, and Mexico. Exactly one month from
Question:
Telex corporation operates in three different markets - Canada, New Zealand, and Mexico. Exactly one month from now, the company expects to receive substantial amounts in all three currencies. At the same time, the company is also required to make a significant sum of payments in the same currencies. The following table summarizes firms committed receipts and payments in one month.
Currency | Total Inflow | Total Outflow |
Canadian dollars (C$) | 50662000 | 10104000 |
New Zealand dollars (NZ$) | 5052000 | 2805000 |
Mexican pesos (MXP) | 3038000 | 15015000 |
Based on data for the last 60 months, it estimates the standard deviation of monthly percentage changes exchange rate for each currency against USD is produced below.
Currency | Standard Deviation | Spot Rate |
Canadian dollars (C$)/US$ | 3.90% | $0.81 |
New Zealand dollars (NZ$) / US$ | 4.50% | $0.72 |
Mexican pesos (MXP) / US$ | 5.90% | $0.05 |
Moreover, the correlation coefficient among these currencies is produced below.
Currency | Canadian $ | New Zealand $ | Mexican Pesos |
Canadian dollars | 1 |
|
|
New Zealand dollars | 0.78 | 1 |
|
Mexican pesos | 0.47 | -0.26 | 1 |
Based on the above information answer the following questions:
- Using a 95% confidence level determine the maximum one-month loss for the committed receipts or payment individually in each currency (4 Marks)
- Determine the maximum one-month loss for the company from the portfolio of receipts.
- Is there any difference between total portfolio loss and the loss derived by adding the individual currency losses? Explain such differences (if any).
Fundamental Managerial Accounting Concepts
ISBN: 978-1259569197
8th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Olds