# That is 233 and 2 percent of the area under the

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that is, 2.33 and 2 percent of the area under the normal distribution is found beyond ± 2.33 (1 percent under each tail, -2.33 and +2.33 , respectively). Thus, for a one-tailed distribution, the 99 percent confidence level will represent adverse moves that do not occur more than 1 day in 100. In this example, it means 2.33 x 15 = 34.95 bp. Thus, the maximum adverse yield change expected for this zero-coupon bond is an increase of 5 bp + 34.95 basis points = 39.95, or 0.3995 percent, in interest rates.
b. What is the highest yield change expected if a 95 percent confidence limit is required?
13. Bank Three has determined that its inventory of €20 million and £25 million is subject to market risk. The spot exchange rates are \$1.25/€1 and \$1.60/£1, respectively. The σ values of the spot exchange rates of the euro and the pound, based on the daily changes of spot
rates over the past six months, are 65 bp and 45 bp, respectively. Determine the bank’s 10 - day VaR for both currencies. Use adverse rate changes in the 99 th percentile.
16. Bank Four’s stock portfolio has a market value of \$10 million. The beta of the portfolio approximates the market portfolio, whose standard deviation ( m ) has been estimated at 1.5 percent. What is the five-day VaR of this portfolio using adverse rate changes in the 99 th percentile?