Exchange Rates: USASuperCars

Scenario: USASuperCars sells luxury sports cars. It has just signed a contract to sell in New Year’s Day (01-01-2016) time, a batch of these super cars to various customers around the globe. The following table shows the orders from eight customers. The selling prices are fixed and in local currencies at the exchange rate prevailing at the time of the delivery. Of course there is uncertainty in the exchange rates, and in order to cope with this uncertainty estimates of the expected value and standard deviation of these have been provided by the Bank of America for all but one (EUR) of the currencies. The report that came with these estimates stated that these rates are normally distributed and independent.

Questions:

1) For the exchange rate of EUR/USD, where estimates are not available, create an estimate by using the daily closing values of the exchange rate from the last 24 months. Argue which period might be most relevant, if you decide to use less than the full 24-month period to create your estimate. Assume that the exchange rate is normally distributed, calculate the mean and the standard deviation, and use these to fill in the values for France in the table of orders.

2) Specify the distribution and report the mean and the standard deviation of total revenue in $.

3) a) What is the probability that this revenue will exceed $ 2,280,000?

b) What is the probability that this revenue will be less than $ 2,160,000?

4) HSBC offers to pay a certain sum of $2,150,000, in return for the uncertain revenue in local currencies. Give an opinion as to whether this is a good offer for USASuperCars or not?

5) In USASuperCars, the Sales manager is willing to accept HSBC’s offer, but the CEO is not.

Who is more risk-averse?

6) What other risks is the bank taking, apart from the uncertainty in the exchange rates?

7) If the offer is to pay the certain sum next week rather than on New Year’s Day, would that make any difference? When would the bank and when the company would prefer the payment to be made, and why?

8) USASuperCars has accepted HSBC’s offer. Assuming the bank will convert all currencies into US dollars at the prevailing exchange rates. What is the probability that the bank will incur a loss?

9) The bank defines its Value-at-Risk as the loss that occurs at the 5th percentile of the uncertain revenue (5% left tail of the distribution). What is the bank’s Value-at-Risk and what is the banks expected profit?

10) What other options does the bank has if they decide not to convert all/some of the currencies in New Year’s Day?

Marking scheme: 50% of the mark comes from the aforementioned ten questions (5% for each), and 50% from the overall presentation of the ‘business’ report. A ‘business’ report must have a nice cover, a good executive summary, an introduction and a main body that reads through smoothly and uses ‘lay terms’, not statistical jargon. The report should be printed, and formatted with the highest possible quality of presentation. It must contain graphs and as much ‘color’ as possible. No assumptions should be made on the academic background and experience of the potential readership. References should be used carefully and the majority coming from practitioner/business sources (www, the press, etc) and any technical details /analysis should be in an appendix. Overall the main body should not be more than 2500 words.

Worldwide Orders Exchange Rate (to $)

Customer Quantity Selling Price Expected value Standard
(Mean) Deviation

UK 10 £ 57,500 $ 1.4MM/£ $ 0.041/£

France 2 65,000 € NOT AVAILABLE NOT AVAILABLE

Japan 1 5 Y 8,400,000 $0.009DD/Y $0.00045/Y

Japan 2 3 Y 9,000,000 $0.009DD/Y $0.00045/Y

Canada 1 2 CAD 97,000 $0.824YY/CAD $0.0342/CAD

Canada 2 2 CAD 100,000 $0.824YY/CAD $0.0342/CAD

South Africa 2 R 4,100,000 $.0.0211/R $.0.00083/R

USA 1 $100,000 – –

In the essay must be placed my birthday as well so date of my birthday is 11/08/1987. Also I have send 2 documents to you vie e-mail. I have attached 2 documents one of them with numbers and related to my essay with the questions. It is the questions for essay in the document with the name ————usa supercars word and also birthday

another is example of essay but i want the essay will look like not completely like as example. i prefer to have something different and more academic approach. Also I need excel files as well as a part of my Essay. Excel is one of the major document to send it with my essay.

I have attached 2 documents one of them with numbers and related to my essay with the questions. It is the questions for essay in the document with the name ————usa supercars word and also birthday
another is example of essay but i want the essay will look like not completely like as example. i prefer to have something different and more academic approach. Also I need excel files as well as a part of my Essay.

Many Thanks

Hi,

As it seen from the graph for France the prices are not available so it must be filled and chosen by writer.

Also there must be executive summary which is which means with the reader must be convinced. The paper must be like financial times journal article with graps and illustration. Also the language as well not so academic but the language reading Financial times journal. There must be well structure and a good decisions. The order of questions are not important but all the questions must be answered and build for essay structure. At last 1 paper with answers all questions which is shown in the papaer which I supported. Also it must be different from the pattern which i send and new ideas also some examples could be used from pattern. Also as a writer please could you give your own experience and practice to acheive high grade. I wish to acheive distinction.