Consider a portfolio with two foreign currencies: the Canadian dollar (CAD) and the euro (EUR). These...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Consider a portfolio with two foreign currencies: the Canadian dollar (CAD) and the euro (EUR). These currencies are correlated with and have a volatility against the dollar of 5% and 12 %, respectively. The portfolio has US$2 million invested in CAD and US$1 million in the EUR a) (15 Marks) We want to increase the CAD position by US$10,000 Calculate the incremental VaR by using 1) the approximation (marginal VaR method), and 2) the full revaluation. b) (15 Marks) Find the component VaR, and the percentage contribution of these two currencies. c) (15 Marks) Marginal VaR and component VaR can help the portfolio manager to decrease the risk of the portfolio. Construct the current portfolio to a Global Minimum Risk Portfolio. Consider a portfolio with two foreign currencies: the Canadian dollar (CAD) and the euro (EUR). These currencies are correlated with and have a volatility against the dollar of 5% and 12 %, respectively. The portfolio has US$2 million invested in CAD and US$1 million in the EUR a) (15 Marks) We want to increase the CAD position by US$10,000 Calculate the incremental VaR by using 1) the approximation (marginal VaR method), and 2) the full revaluation. b) (15 Marks) Find the component VaR, and the percentage contribution of these two currencies. c) (15 Marks) Marginal VaR and component VaR can help the portfolio manager to decrease the risk of the portfolio. Construct the current portfolio to a Global Minimum Risk Portfolio.
Expert Answer:
Answer rating: 100% (QA)
SOLUTION To calculate the incremental VaR using the marginal VaR method we need to consider the volatilities and correlations of the currencies involved Given CAD volatility 5 EUR volatility 12 CAD in... View the full answer
Related Book For
Business Math
ISBN: 978-0133011203
10th edition
Authors: Cheryl Cleaves, Margie Hobbs, Jeffrey Noble
Posted Date:
Students also viewed these finance questions
-
You will review and analyze the mission statement, case information, and financial statements of Canada Hardware Inc. You will use the information from your review to develop a SWOT analysis with the...
-
There are three assets, A, B and C, where A is the market portfolio and C is the risk-free asset. The return on the market has a mean of 12% and a standard deviation of 20%. The risk-free asset...
-
What other cost factors might you include in such an economic analysis? The proposed small office building in Example 3-2 has 24,000 net square feet of area heated by a natural gas furnace. The owner...
-
Repeat Problem 32.3 valuing a European put option with a strike of $87. What is the put-call parity relationship between the prices of European call and put options? Show that the put and call option...
-
Donald Lennon is the president, founder, and majority owner of Wichita Medical Corporation, an emerging medical technology products company. Wichita is in dire need of additional capital to keep...
-
Below are the financial statements for two entertainment firms, Crosby Co. and Prairie Inc. for 2017 and 2018 a. How did Crosby Co.s profit margins change from 2017 to 2018? To what would you...
-
A pharmaceutical company manufactures two drugs at Los Angeles and Indianapolis. The cost of manufacturing a pound of each drug depends on the location, as indicated in the file S13_42.xlsx. The...
-
For this exercise, instead of using the values in the challenge, ask the user for the number of shares, the share price, and the percent commission.For this exercise, instead of using the values in...
-
A solid circular bar ABCD with fixed supports is acted upon by torques T0 and 2T0 at the locations shown in the figure. Obtain a formula for the maximum angle of twist (max of the bar. (Use Eqs. 3-46...
-
1. Insert the following variable in your program: Uarray WORD 1000h, 2000h, 3000h, 4000h Sarray SWORD -1, -2, -3, -4 Write instructions that use direct-offset addressing to move the four values in...
-
1. What is an Ad Idea? How does it impact your creative? 2. Explain an advertisement that you love, or find online. How does the creative and copy power the underlying message for that brand/product?...
-
Explain how a salesperson can influence purchasing. Respond to the following scenario: Your copier needs to be repaired. You have money to replace it, so you call a salesperson. The salesperson tells...
-
Where do your products/services fit in the market? How do they compare to those of your competitors? How do customers benefit from your products/services? Place strategy Channel Product/ services...
-
Everything you know about the surface of the planet is based on your interpretation of this digital image. Would you land your spacecraft on this place? Why or why not
-
A True Platform For Sellers: How Alibaba Is Trying to Take Over The World 1. How is Alibaba seeking to facilitate each stage in the B2B buying process? 2. What methods is Alibaba using to build its...
-
Write out the yearly cost formula in a Y = a + BX format. Be sure to include both manufacturing costs and nonmanufacturing costs in the cost formula. Complete Phase I: Req #5) Assume that you make...
-
The landing gear of an aircraft with: mass of 2000 kg the spring-mass-damper system Consider that the runway surface is y(t) = 0.2 cos 157.08t stiffness of the spring is 5 x 105 N/m. What is the...
-
Roland Clark has a simple discount note for $6,500, at an ordinary bank discount rate of 8.74%, for 60 days. What is the effective interest rate? Round to the nearest tenth of a percent.
-
Find the refund fraction on an 18-month loan if it is paid off with 8 months remaining.
-
Find the current yield of National Semiconductor Corp. (NSM) that reported a dividend of $0.32 and a closing price of $14.05?
-
You hold a puck at the top of an ice-covered ramp inclined at \(60^{\circ}\) with respect to the vertical. Your friend stands nearby on level ground and holds a ball at the same height \(h\) above...
-
A particle moves in the \(x\) direction according to the equation \(x(t)=b t^{3}+c t^{2}+d\), where \(b=4.0 \mathrm{~m} / \mathrm{s}^{3}\), \(c=-10 \mathrm{~m} / \mathrm{s}^{2}\), and \(d=20...
-
The position of a cart on a low-friction track can be represented by the equation \(x(t)=b+c t+e t^{2}\), where \(b=4.00 \mathrm{~m}, c=6.00 \mathrm{~m} / \mathrm{s}\), and \(e=0.200 \mathrm{~m} /...
Study smarter with the SolutionInn App