Sumitomo Bank's risk manager has estimated that the DEARs of two of its major assets in its trading portfolio, foreign exchange and bonds, are -$150,000 and -$250,000, respectively
-What is the total DEAR of Sumitomo's trading portfolio if the correlation among assets is assumed to be 1.0?

Question

Quizplus · Accepted Answer

When the correlation among assets is 1.0, the DEARs are perfectly correlated, so the total DEAR is simply the sum of the individual DEARs: -$150,000 + (-$250,000) = -$400,000.

Sumitomo Bank's Risk Manager Has Estimated That the DEARs of Two