If we extend the VaR method to a two-asset portfolio including another currency receivable with the...
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If we extend the VaR method to a two-asset portfolio including another currency receivable with the same standard deviation and expected exchange rate change, what will happen to the maximum 1-month percentage change measure? Why? (Note that the addition of another foreign currency cash flow will both add additional exposure to foreign currency cash flows while also resulting in a foreign currency portfolio diversification effect. In effect, the question comes down to a question of which effect would likely have a greater impact on the MNC's exchange rate exposure.) If we extend the VaR method to a two-asset portfolio including another currency receivable with the same standard deviation and expected exchange rate change, what will happen to the maximum 1-month percentage change measure? Why? (Note that the addition of another foreign currency cash flow will both add additional exposure to foreign currency cash flows while also resulting in a foreign currency portfolio diversification effect. In effect, the question comes down to a question of which effect would likely have a greater impact on the MNC's exchange rate exposure.)
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Related Book For
Modeling the Dynamics of Life Calculus and Probability for Life Scientists
ISBN: 978-0840064189
3rd edition
Authors: Frederick R. Adler
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