Solution to Supplemental Case: Whaler Publishing Co.
Solution to Supplemental Case: Whaler Publishing Co.
1. The first step is to measure the standard deviation of the percentage change in each exchange rate, which can most easily be done with a spreadsheet. This information can then be used along with today’s spot exchange rate to derive the confidence intervals for each exchange rate.
Approximate 68 Percent 95 Percent Standard Confidence Confidence Currency Deviation Interval Interval Australian $ 9.59% $.6935 to $.8407 $.6200 to $.9142 Canadian $ 5.10 $.8185 to $.9065 $.7745 to $.9505 New Zealand $ 12.03 $.5265 to $.6705 $.4545 to $.7425 British pound 16.40 $1.6203 to $2.2560 $1.3024 to $2.5739
Using the intervals described above and the number of foreign currency units to be received from each country, the range of forecasted U.S. dollar revenues (in thousands) from each country is disclosed below:
68 Percent 95 Percent Confidence Confidence Currency Interval Interval Australian $ $26,353 to $31,946 $23,560 to $34,739 Canadian $ $28,647 to $31,727 $27,107 to $33,267 New Zealand $ $17,374 to $22,126 $14,998 to $24,502 British pound $55,090 to $76,704 $44,282 to $87,512
The numbers here may differ slightly from those the students compute due to rounding. The standard deviations estimated above suggest that the Canadian dollar is the most stable currency so the U.S. dollar revenues coming from Canada are more predictable. Con¬versely, the standard deviation of the British pound has been most volatile, so that the U.S. dollar revenues coming from the United Kingdom are less predictable. The above comparison of predictability of U.S. dollar revenues from various countries assumes that the foreign currency revenues in each country is known. In other words, the reason for the uncertainty in dollar revenues is the exchange rate, not the demand for textbooks by each given country.
Notice that the estimates were not pooled in any way to derive a
1. The first step is to measure the standard deviation of the percentage change in each exchange rate, which can most easily be done with a spreadsheet. This information can then be used along with today’s spot exchange rate to derive the confidence intervals for each exchange rate.
Approximate 68 Percent 95 Percent Standard Confidence Confidence Currency Deviation Interval Interval Australian $ 9.59% $.6935 to $.8407 $.6200 to $.9142 Canadian $ 5.10 $.8185 to $.9065 $.7745 to $.9505 New Zealand $ 12.03 $.5265 to $.6705 $.4545 to $.7425 British pound 16.40 $1.6203 to $2.2560 $1.3024 to $2.5739
Using the intervals described above and the number of foreign currency units to be received from each country, the range of forecasted U.S. dollar revenues (in thousands) from each country is disclosed below:
68 Percent 95 Percent Confidence Confidence Currency Interval Interval Australian $ $26,353 to $31,946 $23,560 to $34,739 Canadian $ $28,647 to $31,727 $27,107 to $33,267 New Zealand $ $17,374 to $22,126 $14,998 to $24,502 British pound $55,090 to $76,704 $44,282 to $87,512
The numbers here may differ slightly from those the students compute due to rounding. The standard deviations estimated above suggest that the Canadian dollar is the most stable currency so the U.S. dollar revenues coming from Canada are more predictable. Con¬versely, the standard deviation of the British pound has been most volatile, so that the U.S. dollar revenues coming from the United Kingdom are less predictable. The above comparison of predictability of U.S. dollar revenues from various countries assumes that the foreign currency revenues in each country is known. In other words, the reason for the uncertainty in dollar revenues is the exchange rate, not the demand for textbooks by each given country.
Notice that the estimates were not pooled in any way to derive a