1.Bank of Southern Tasmania has determined that its inventory of 20 million euros () and 25 million...

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1.Bank of Southern Tasmania has determined that its inventory of 20 million euros (€) and 25 million UK pounds (£) is subject to market risk. The spot exchange rates are $1.25/€ and $1.60/£, respectively. The σ’s of the spot exchange rates of the euro and the pound, based on the daily changes of spot rates over the past six months, are 65 bp and 45 bp, respectively. Determine the bank’s 10-day VaR for both currencies. Use adverse rate changes in the 99th percentile. LO 9.4

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