Cerra Co.expects to receive 5 million euros tomorrow as a result of selling goods to the Netherlands.Cerra estimates the standard deviation of daily percentage changes of the euro to be 1 percent over the last 100 days.Assume that these percentage changes are normally distributed.Using the value-at-risk (VAR)method based on a 95% confidence level,what is the maximum one-day loss if the expected percentage change of the euro tomorrow is 0.5%

Question

Quizplus · Accepted Answer

The maximum one-day loss at a 95% confidence level is calculated as the expected change minus 1.65 times the standard deviation (since 1.65 is the z-score for 95% confidence in a normal distribution). Thus, 0.5% - (1.65 * 1%) = -1.15%, which rounds to -1.2%.

Cerra CoExpects to Receive 5 Million Euros Tomorrow as a Result