Assume Nike is exposed to a currency portfolio weighted 50 percent in Canadian dollars and 50...

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Assume Nike is exposed to a currency portfolio weighted 50percent in Canadian dollars and 50 percent in Mexican pesos. Nikeestimates the standard deviation of quarterly percentage changes tobe 4 percent for the Canadian dollar and 6 percent for the Mexicanpeso. Also assume that Nike estimates a correlation coefficient of0.2 between these two currencies.
a) Calculate the portfolio’s standard deviation.
b) Assuming i) normal distribution of the quarterly percentagechanges of each currency (and so the same of the portfolio aswell), and ii) an expected percentage change of -1 percent for thecurrency portfolio, calculate the maximum one-quarter loss of thecurrency portfolio based on a 95 percent confidence level.

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Assume Nike is exposed to a currency portfolio weighted 50percent in Canadian dollars and 50 percent in Mexican pesos. Nikeestimates the standard deviation of quarterly percentage changes tobe 4 percent for the Canadian dollar and 6 percent for the Mexicanpeso. Also assume that Nike estimates a correlation coefficient of0.2 between these two currencies.a) Calculate the portfolio’s standard deviation.b) Assuming i) normal distribution of the quarterly percentagechanges of each currency (and so the same of the portfolio aswell), and ii) an expected percentage change of -1 percent for thecurrency portfolio, calculate the maximum one-quarter loss of thecurrency portfolio based on a 95 percent confidence level.