Assume that exchange rate movements were unusually stable in a recent period (but will not continue to be so stable in the future) that was used to derive the estimated maximum expected loss based on the VaR method. The estimated expected loss derived using VaR based on that recent period will likely overestimate the actual maximum expected loss in the future.

Question

Quizplus · Accepted Answer

The estimated expected loss derived using VaR based on a period of unusual stability in exchange rate movements will likely underestimate, not overestimate, the actual maximum expected loss in the future if exchange rate movements become more volatile.

Assume That Exchange Rate Movements Were Unusually Stable in a Recent