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What is the maximum one-day loss

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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 1.2 percent over the last 100 days. Assume that these percentage changes are normally distributed. The expected percentage change of the euro tomorrow is -0.5%. Use the value-at-risk (VAR) method based on a 95% confidence level for the following question(s).

a. What is the maximum one-day loss?

b. Assume the current spot rate of the euro (before considering the maximum one-day loss) is $1.01, what is the maximum one-day loss in dollars?

Reference no: EM132770546

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