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The Bank of Massachusetts foreign exchange trading division calculated that the one day 1% VaR of the bank is a loss of $1m. An employee
The Bank of Massachusetts foreign exchange trading division calculated that the one day 1% VaR of the bank is a loss of $1m. An employee made the following arguments:
i. The VaR of the bank will increase (in absolute value) if the volatility in the foreign exchange market will increase
ii. When we calculate VaR we do not make any assumptions about the distribution of returns
iii. The bank is expected to earn more than $1m in 1% of days
Which of the employees arguments are correct? (You can choose more than one)
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