Intro

The current exchange rate between the yen () and the U.S. dollar is $0.0093 per . The yen is expected to depreciate by 0.2% per day against the dollar and the standard deviation of the of daily percentage changes in the yen against the dollar is 0.19%

Attempt 2/10 for 7 pts.

Part 1

What is the maximum one-day depreciation of the yen against the dollar with a 95% confidence level (VaR_5%)?

Correct

90% of observations fall within 0.0093 standard deviations around the mean. Therefore, 5% of observations fall below 0.0093 standard deviations below the mean.

Maximum one-day loss (Value at risk):

Max. 1-day loss=E(et)(1.645)Max. 1-day loss=E(et)-(1.645) = 0.002(1.6450.0019)-0.002-(1.6450.0019) = 0.00513-0.00513

Using Excel: =NORM.INV(probability, mean, standard deviation) =NORM.INV(0.05, -0.002, 0.0019) =-0.00513

Attempt 2/10 for 7 pts.

Part 2

What is the expected value of the yen if the maximum one-day loss from the previous part occurs (in $ per )?

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