1. Some time ago a company has entered into a forward contract to buy 1 million for $1.5 million. The contract now has six months to maturity. The daily volatility of a six-month zero-coupon sterling bond (when its price is translated to dollars) is 0.063% and the daily volatility of a six-month zero-coupon dollar bond is 0.053% . The correlation between returns from the two bonds is 0.75 . The current exchange rate is 1.56 . Calculate the standard deviation of the change in the dollar value of the forward contract in one day. What is the 10-day 99% VaR? Assume that the six-month interest rate in both sterling and dollars is 5% per annum with continuous compounding.

   		0.00337
   		0.00433
   		0.00391
   		0.00469