a) The table below provides information about the Foreign Exchange Markets in London and Frankfurt. Using the information in the table, explain whether those markets are efficient or not. (5 marks) b) Risk Ltd., a company based in Netherlands, has foreign trading assets in three major currencies, JPY, USD, and GBP. The company has a long position of JPY 770 million, a long position of USD 7.2 million, and a short position of GBP 6.4 million. Daily observations for the last 12 months show that the spot rates' standard deviation is 1% for both JPY and GBP and 0.5% for USD. The correlation between EUR/JPY and EUR/GBP is +40%, between EUR/JPY and EUR/USD is +50%, and between EUR/USD and EUR/GBP is +30%. What is the risk ( VaR) of the overall position over a 10-day interval at the 99% confidence level? Assume 0.80GBP=1EUR,1.2USD=1EUR and 110JPY=1EUR. (10 marks) c) Thoroughly explain the concept of Bond Market Risk (VaR). Compare the standard bond market risk (VaR) approach to the one using the bond's duration. Moreover, discuss how a company can hedge its portfolio of bonds using their duration and the forward market. (10 marks) a) The table below provides information about the Foreign Exchange Markets in London and Frankfurt. Using the information in the table, explain whether those markets are efficient or not. (5 marks) b) Risk Ltd., a company based in Netherlands, has foreign trading assets in three major currencies, JPY, USD, and GBP. The company has a long position of JPY 770 million, a long position of USD 7.2 million, and a short position of GBP 6.4 million. Daily observations for the last 12 months show that the spot rates' standard deviation is 1% for both JPY and GBP and 0.5% for USD. The correlation between EUR/JPY and EUR/GBP is +40%, between EUR/JPY and EUR/USD is +50%, and between EUR/USD and EUR/GBP is +30%. What is the risk ( VaR) of the overall position over a 10-day interval at the 99% confidence level? Assume 0.80GBP=1EUR,1.2USD=1EUR and 110JPY=1EUR. (10 marks) c) Thoroughly explain the concept of Bond Market Risk (VaR). Compare the standard bond market risk (VaR) approach to the one using the bond's duration. Moreover, discuss how a company can hedge its portfolio of bonds using their duration and the forward market. (10 marks)