1. City bank has six-year zero coupon bonds with a total face value of $20 million. The current market yield on the bonds is 10 percent. Suppose that during last year the mean change in daily yields on six-year zero-coupon bonds was 25 basis points, while the standard deviation was 30 basis points. Yield changes are assumed to be normally distributed (critical value = 1.96 for 95% confidence interval)

Question: Continue from #1, what is the daily earnings at risk (DEAR) of this bond portfolio?

2. 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 SF 1.89/$.

(keep 4 decimal places in your computation)

Question: What is the value of delta in dollars for Japanese Yen position?

3. 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 SF 1.89/$.

(keep 4 decimal places in your computation)

Question: Over the past 500 days, the 25th 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?

4. Bank of Southern Vermont has determined that its inventory of 20 million euros () and 25 million British pounds () is subject to market risk. The spot exchange rates are $0.40/ and $1.28/, respectively. The s of the spot exchange rates of the and , based on the daily changes of spot rates over the past six months, are 65 bp and 45 bp, respectively. Use adverse rate changes in the 90% confidence interval (critical value = 1.65 for 90% confidence interval).

Question: What is the DEAR of euros ()?

5. Bank of Southern Vermont has determined that its inventory of 20 million euros () and 25 million British pounds () is subject to market risk. The spot exchange rates are $0.40/ and $1.28/, respectively. The s of the spot exchange rates of the and , based on the daily changes of spot rates over the past six months, are 65 bp and 45 bp, respectively. Use adverse rate changes in the 90% confidence interval (critical value = 1.65 for 90% confidence interval).

Question:What is the DEAR of British pounds ()?