A U.S. based MNC, the Bundy company, will receive one million yen tomorrow for i

Question

A U.S. based MNC, the Bundy company, will receive one million yen tomorrow for its exports to an importer in Japan. It wants to determine its maximum one day loss based on a 95% confidence interval. The firm's estimate of the standard deviation of the daily percentage change in the yen during the previous 100 day is 1.1%. Give that the spot rate for the Yen is $0.012, find The value of the yen based on the maximum one day loss if the firm expects a 0.5% fall in its value. The potential dollar loss for the Bundy co. If the percentage variability in the daily movement of the yen is 1.3%. The potential dollar loss if the confidence interval is 90% and the percentage variability of the yen is unchanged at 1.1%.

Explanation / Answer

Applying an electronic spreadsheet, the standard deviation of the yen movements is about .029185.

      Maximum expected percentage decline in yen is:

                        = Forecasted % change – (1.65 x Standard Deviation of yen movements)

                        = 0 – (1.65 x .029185) = -.048155

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