Question: (c) Foreign exchange: The bank has a net long position of 10 million Euros (10M) at the close of business on a particular day. The

(c) Foreign exchange: The bank has a net long position of 10 million Euros (10M) at the close of business on a particular day. The exchange rate is AU$1.6393/1 (i.e. 1.6393 AUD - 1) at the daily close. Looking back at the daily changes in the exchange rate of the euro to AUD for the past year, the bank finds that the historical mean change in daily exchange rates was 0.0 per cent and the volatility or standard deviation () of the spot exchange rate was 0.63%. *REQUIRED: Answer (c)(1)-(U) below (c) (i) What causes movements in the exchange rate? [2 marks] (c) (i) Calculate the 90% DEAR for FX, based on the given data. [2 marks]

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