On June 23, 2016, the U.K. electorate voted to pull Great Britain from the European Union. The value of the British pound immediately moved from $1.4790 to $1.3235.

a) By what percentage did the pound depreciate against the U.S. dollar? By what percentage did the dollar appreciate against the pound?

b) Assume (i) the historical annualized volatility of the USD/GBP exchange rate is approximately 8%, (ii) the expected move in the USD/GBP exchange rate is random from day to day and is therefore essentially 0%, and (iii) there are 256 business days in a year. If we consider the pound’s fall described above to have occurred over the course of one day, by how many standard deviations did it move.

c) Given you answer in part B. immediately above, what are the implications of this event for the value at risk (“VaR”) methodology of risk assessment?