On December 31, 2001 Historic Bank had long positions of 200,000,000 Japanese Yen and 50,000,000 Swiss Francs. The closing exchange rates were ¥92/$ and Swf 1.89/$. Over the past 500 days, the 25^th worst day for adverse exchange rate changes saw a change in the exchange rates of 0.78 percent for the Yen and 0.30 percent for the Swiss Franc. What is the expected VAR exposure on December 31?

Question

Quizplus · Accepted Answer

The VAR exposure is calculated by applying the adverse exchange rate changes to the positions. For Yen: 200,000,000 * 0.0078 = 1,560,000 Yen. For Swiss Franc: 50,000,000 * 0.003 = 150,000 Swf. Convert these to USD: 1,560,000 / 92 + 150,000 / 1.89 = $96,332.

On December 31, 2001 Historic Bank Had Long Positions of 200,000,000