You work for a U.S. based company that is exposed to the Norwegian krone (NOK) and the Polish zloty (PLN); 75% of your companys net cash inflows are in NOK and 25% are in PLN. You estimate that the standard deviation of monthly percentage changes is 2% for the NOK and 3% for the PLN. You also estimate that the correlation between the monthly percentage changes of these two currencies is 70%.

a. Compute the monthly standard deviation of this two-currency portfolio. Express your answer in percentage terms to two decimal places (e.g., 5.55%).

b. You expect a 2 percent decrease for the currency portfolio against the U.S. dollar over the next month. Use the value at risk (VaR) method based on a 95% confidence interval to estimate your companys maximum expected loss due to its transaction exposure to the NOK and PLN over the next month, both in percentage terms and in dollar terms.