PharmaCo sells Medical Imaging Devices. It has just signed a contract to sell in 02 -Apr-2018 a batch o

PharmaCo sells Medical Imaging Devices. It has just signed a contract to sell in 02 -Apr-2018 a batch of these expensive devices to various customers around the world. The following table shows the orders from seven customers. The selling prices are fixed and in local currencies at the exchange rate prevailing at the time of the delivery – that is on 02-Apr-2018. Of course there is uncertainty in the exchange rates, and in order to cope with this uncertainty estimates of the mean and the 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 in between them. 

Worldwide Orders 

Exchange Rate (to $) 

Customer 

Quantity 

Selling Price 

Mean 

Standard Deviation 

UK 

10 

£ 57,500 

$ 1.4/£ 

$ 0.041/£ 

France 

2 

65,000 € 

$1.1/Euro 

$0.03/Euro 

Japan 1 

5 

Y 8,400,000 

$0.009/Y 

$0.00045/Y 

Japan 2 

3 

Y 9,000,000 

$0.009/Y 

$0.00045/Y 

Canada 

4 

CAD 98,500 

$0.824YY/CAD 

$0.0342/CAD 

South Africa 

2 

R 4,100,000 

$.0.0211/R 

$.0.00083/R 

USA 

1 

$100,000 

1. Find the distribution and report the mean and the standard deviation of the total revenue in $

    

2. a) What is the probability that this revenue will exceed $ 2,300,000?

   b) What is the probability that this revenue will be less than $ 2,100,000?

    

3. HSBC offers to pay a sure sum of $2,170,000 (payment to be made on the 02 – Apr -2018) in return for the revenue in local currencies form the sales. What do you think, is this a good offer for PharmaCo or not? The CEO of PharmaCo is very risk-averse: do you think he/she will accept the offer?

    

4. Why HSBC is making this offer and what is the probability that the bank will incur a loss? What other options does the bank has if they decide not to convert all/some of the currencies in $ on 02 – Apr -2018?

    

5. For the exchange rate of EUR/USD let’s assume that estimates were not available. Describe a process for producing such estimates.