Tutorial for ch10_answers1 - TUTORIAL FOR CHAPTER 10....

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TUTORIAL FOR CHAPTER 10. MARKET RISK: VAR Problem 1. a. MD = 4.6729 years b. Potential adverse move in yield at 5 % = 001980 c. Price volatility = -0.009252 or -0.9252 % d. DEAR = $9,252 e. 10 day VAR = $9,252 x 3.1623 = $29,257.39. Problem 2. a. Modified = -13.6986. b. Price volatility = -0.03425 or -3.425 % c. Dollar market value of position = $102.5293 million DEAR = -$3.5116 million, or -$3,511,630. d. σ = 0.001515 or 15.15 basis points. Problem 3. FX position of BP = $32 million FX volatility BP = 74.25 bp, or 0.7425% DEAR = ($ Value of position) x (Price volatility) DEAR of BP = $0.2376m, or $237,600 VAR of BP = $237,600 x 10 = $751,357.17 Problem 4. 559464 $ = portfolio DEAR The DEAR for a portfolio with perfect correlation would be $750,000. Therefore the risk reduction is $750,000 - $559,464 = $190,536.
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Problem 5. a. What is the foreign exchange (FX) position in dollar equivalents using the FX rates on February 4? Japanese Yen: = $2,675,465.98 Swiss Francs: = $7,072,135.78 b. What is the definition of delta as it relates to the FX position? Delta measures the change in the dollar value of each FX position if the foreign currency depreciates by 1
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This note was uploaded on 12/04/2011 for the course FIN 3230 taught by Professor Olgapak during the Fall '11 term at Kazakhstan Institute of Management, Economics and Strategic Research.

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Tutorial for ch10_answers1 - TUTORIAL FOR CHAPTER 10....

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