Exchange rate & Var

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Posts: 63
Joined: Mon Nov 05, 2012 9:13 am

Exchange rate & Var

Postby balajismz » Wed Nov 14, 2012 8:53 am

Can someone try the below problem??

An American bank has a cash position of €1 million. The euro exchange rate is 0.95 USD/EUR. The 1-day euro exchange rate is normally distributed with mean 0.96 and standard deviation 0.01. Compute the 1-day VaR with 99% confidence (in USD)
Choose one answer.
a. $50,000
b. $9,600
c. $16,500
d. $19,600
The correct answer is: $9,600. Lower EUR = 0.96- 1.96 × 0.01 = 0.9404; 1m EUR = $9,40,400; VaR = $950,000 - $9,40,400= $9,600.



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