(Ch. 10) Extending VaR. River Plate, an Argentine soccer club, sold a player to Spain for EUR 9M. Payments are in installments of EUR 3M each, every 30 days. River Plate wants to calculate the VaR(99%) for the next payment in 30 days. River Plate believes monthly EURARS changes (ef,t) follow a normal distribution. River Plate estimates the mean and the variance from the empirical distribution from the past 5 years:

= Monthly mean = 0.054

2 = Monthly variance = 0.0105

St = 15 EURARS

i) Calculate the Transaction Exposure (TE)

3 ii) Calculate the 30-day VaR(99%) (HINT: use z = 2.33).