You have been appointed as a new staff member in the Risk Management Division of UniBank. The head of the division provides you with the following background information:

The bank operates in the domestic retail and commercial market and needs to manage its risk exposure in terms of interest rate changes; market risk; credit risk; liability and liquidity risk; off-balance-sheet risk; technology and other operational risks; and its capital adequacy.

Considering the current level of competition in the market and also the volatile financial market, there are some issues that require quick answers and need to be attended to. Within this context, the head of the division asks you to attend to the following issues:

1. Due to the increase in market risk, the bank is considering the possible restructuring of its trading portfolio. Currently, the portfolio consists of three-year zero coupon bonds with a daily earnings at risk (DEAR) of $10,000, Foreign exchange contracts with a DEAR of $15,000 and shares with a DEAR of $20,000. The bank has to determine the DEAR of the portfolio to consider the impact that it can have on the financial position of the bank if the market shows the following current correlations (_ij) among the assets:

	Three-year zero-coupon	Foreign exchange contracts	Shares
Three-year, zero-coupon bonds	C	0.1	0.3
Foreign exchange contracts	C	C	0.4
Shares	C	C	C

Calculate the DEAR for the trading portfolio for the Head of the Division. (10 marks)