Suppose that an FI has a 1 6 million long trading position in spot euros at the close of business on a particular day Looking back at the daily percentage changes in the exchange rate of the $ for the past year, the volatility or standard deviation () of daily percentage changes in the $ spot excha...

The first step is to calculate the dollarequivalent amount of the po ...

Suppose that an FI has a 1.6 million long trading position in spot euros at the close

Question:

Suppose that an FI has a €1.6 million long trading position in spot euros at the close of business on a particular day. Looking back at the daily percentage changes in the of the €/$ for the past year, the volatility or standard deviation (σ) of daily percentage changes in the €/$ spot was 62.5 basis points (bp). Calculate the FI’s daily earnings at risk from this position (i.e., adverse moves in the FX markets with respect to the value of the euro against the dollar will not occur more than 1 percent of the time, or 1 day in every 100 days) if the spot is €0.80/$1, or $1.25/€, at the daily close. Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...