If exchange rate movements are less volatile in the past than in the future, the estimated maximum expected loss derived from the VAR method will be underestimated.

Question

Quizplus · Accepted Answer

This statement is true because if exchange rate movements are less volatile in the past and the VAR method relies on historical data, it would only account for lower levels of volatility, leading to an underestimation of the maximum expected loss.

If Exchange Rate Movements Are Less Volatile in the Past