Question: In its trading portfolio, a U.S. FI is long 20 million worth of pound FX forward contracts and has sold 40 million of euro FX

In its trading portfolio, a U.S. FI is long ₤20 million worth of pound FX forward contracts and has sold €40 million of euro FX forward contracts that mature in one year. The current exchange rate of dollars for pounds is $1.5625 and the exchange rate of euros for pounds is $1.25 at the daily close. The shift risk factor (i.e., standard deviation) for level 1 risk factor is 5 percent, for level II risk factor for pounds is 8 percent, and for level II risk factors for euros is 12 percent. Using the risk factors listed in Table 15-8, calculate the market risk capital charge on these securities.

Step by Step Solution

★★★★★

3.44 Rating (170 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

Step 1 Assign each instrument to applicable risk factors From Table 158 hedgeable risk factors for these FX contracts include level I exchange rate of US currency to worldwide currency basket and leve... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

665-B-B-F-M (3606).docx

120 KBs Word File

Students Have Also Explored These Related Banking Questions!

Citigroup Inc. (Citi) is a leading global financial services company with over 200 million customer accounts and operations in more than 140 countries. Its operating units Citicorp and Citi Holdings...

In its trading portfolio, an FI holds 10,000 Exxon Mobil (XOM) shares at a share price of $86.50 and has sold 5,000 General Electric (GE) shares under a forward contract that matures in one year. The...

U.K.-based OSA has an expected expense of 20 million due in one year. Actual expenses might be as low as 15 million or as high as 25 million. The expected future spot rate is E[S 1 / ] = $0.6000/....

Use information from slides 11-3, 11-4, 11-5, 11-6, 11-7, & 11-8 to fill out the chart Relationship between portfolio Values, profit and rate of return - Fundamental approach Beginning Ending Profit...

Case to be discussed : Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures HBSP Product #: 205095-PDF-ENG Exhibit 9 GM Canada - Projected Cash Flow...

Hey i need you help with my Portfolio final report. i get some of them and want you to finish it, i will upload the professor sample report, and half of my work, plus the week 4 and week 5 report...

What factors should be considered in deciding whether the cost of capital for a foreign affiliateshould be higher, lower, or the same as the cost of capital for a comparable domestic operation?...

1. Should multinational firms hedge foreign exchange rate risk and why? If not, what are the consequences? If so, how should they decide which exposure to hedge? 2 . What do you think of GM's foreign...

The premium for September 19th call option on Canadian dollar is $0.04, and the strike price is $0.80. Assume that on September 19 the spot rate for the Canadian dollar rose to $0.92. What is the USD...

AHedging Currency Risks at AIFS Christopher Archer-Lock, London-based controller for student exchange organization American Institute for Foreign Study (AIFS) talked almost daily with his...

Given: m- 10 kg h = 5 m L = 10m S, = 2m Figure: -44 H = 0.06 coef. of kinetic friction Note. Particle "m" is release from rest at pl. A and moves to pt. B, then to pt.C, and finally to pt.D. Neglect...

The records of the Mission Company show the following data for Item A: Balance, January 1 ...........................200 units @ $10 per unit The sales price for Item A was $ 15 per unit throughout...

A city has decided to build an underground subway system that connects 6 major intersections called intersections A t B 1 dots. F . The city has also estimated the cost of connecting every 2 of these...

What reasons are there why selling is not considered a more prestigious occupation?

Using Table 4-6, which type of security accounts for most underwriting in the United States? Which is likely to be more costly to underwrite: corporate debt or equity? Why? LO.1

How did the financial crisis affect the performance of securities firms and investment banks? LO.1

How do the operating activities, and thus the balance sheet structures, of secu- rities firms differ from the operating activities of depository institutions and insurance firms? How are the balance...

This information relates to Ivanhoe Co. 1. 2. 3. 4 On April 5, purchased merchandise from Pharoah Company for $24.200 on account. On April 7. purchased equipment on account for $25,800. On April 8,...

It says "Mark owns a 20% interest in a partnership (not real estate) in which his at-risk amount is $44000 at the beginning of the year. During the year, the partnership borrows $90000 on a recoursw...

QUESTIONS Vrterest id or accrued during 2018 on regate quistion deteness of million or enim formare persone con is deductible wrate de interest QUESTIONS