Determine the 10-day value at risk (VaR) for the financial institutions in questions 17.

Question 17 is answered below:

17) At close of business a bank's foreign currency holdings consist of 100,000 euros and 100,000 Swiss francs. The current exchange rates for the two currencies are: for the euro (in $ per ) 1.1133, and for francs (in Fr per $) .09569. The standard deviation of changes in the euro is 0.005732, and in the franc, 0.004954, and the correlation coefficient between changes in the two currencies is 0.8095. DEAR for the euro is -1972.01; DEAR for francs is -1599.85.

a. What is the DEAR for the bank's foreign currency portfolio?

=1972.01^2 = 3,888,823.44 =1599.85^2 = 2,559,520.02 =2*0.8095 = 1.619 =(1972.01*1599.85)^0.5 = 1776.2095

=3,888,823.44 +2,559,520.02 +2,875.68

DEAR =6,451,219.15

b. Specify the method used. Method used to calculate DEAR is Estimation of VAR on daily basis