Bank of Southern Vermont has determined that its inventory of 20 million euros () and 25 million

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Bank of Southern Vermont has determined that its inventory of 20 million euros (€) and 25 million British pounds (£) is subject to market risk. The spot exchange rates are $1.25/€ and $1.60/£, respectively. The σ’s of the spot exchange rates of the € and £, based on the daily changes of spot rates over the past six months, are 65 bp and 45 bp, respectively. Determine the bank’s 10-day VAR for both currencies. Use adverse rate changes in the 99th percentile.

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FX position of 20m x 125 24 million FX position of 25m x 160 40 million FX volati...View the full answer

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