Why might it be hard to quantify currency risk in a target zone system or a pegged exchange rate system?
What will be an ideal response?
If the peg or target zone holds for a long time, historical volatility appears to be zero or very limited, but this may not accurately reflect underlying tensions that may ultimately result in a devaluation or revaluation of the currency. Hence, the true currency risk does not show up in day-to-day fluctuations of the exchange rate. It is hard to quantify this "latent volatility."
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Rawhide Outfitters had projected its sales for the first six months of 2012 to be as follows:
Jan. $50,000 April $180,000 Feb. $60,000 May $240,000 Mar. $100,000 June $240,000 Cost of goods sold is 60% of sales. Purchases are made and paid for two months prior to the sale. 40% of sales are collected in the month of the sale, 40% are collected in the month following the sale, and the remaining 20% in the second month following the sale. Total other cash expenses are $40,000/month. The company's cash balance as of March 1st, 2012 is projected to be $40,000, and the company wants to maintain a minimum cash balance of $15,000. Excess cash will be used to retire short-term borrowing (if any exists). The firm has no short-term borrowing as of March 1st, 2012. Assume that the interest rate on short-term borrowing is 1% per month. What was Rawhides' projected loss for March? A) $184,000 B) $84,000 C) $110,000 D) none of the above
Most viruses carry out their work in a manner that is specific to a
particular operating system. Indicate whether the statement is true or false