Currency Var - How to solve

[notjusttp]

Hi David,

i seemed 2 b 2 stressed out and am not able to reach to solution to this simple problem. Can you pls help

Bank has a cash position of 1M Euro. The Euro exchange rate is 0.95 USD/EUR. The one-day Euro exchange rate is normally distributed with mean 0.95 and standard deviation 0.01. Compute the one-day Value at Risk with 95% confidence (in dollars).

Choose one answer
a. 19,600
b. 15,675
c. 18,850
d. 21,650

Correct is 15,675

Rgds
Amit

 

[David Harper CFA FRM]

Hi Amit,

I am a bit confused by the mean of 0.95 but if we ignore that:

1 MM EUR * 0.95 * 1% * 1.645 = 15,675

David

 

[notjusttp]

Hi David,

thanks for the prompt reply..even i was not arriving at the ans due to the same confusiion..Cheers.Amit