Stark industries has portfolio of foreign exchange in yens

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a) Stark Industries has a portfolio of foreign exchange in yens of ¥500,000,000.00, the current exchange rate is 115.32 yen per dollar. If changes in the exchange rate (dollar per yen) are normally distributed in basis points with a mean of 0 (zero) and variance of 4900. Calculate the DEAR if a “bad day” could happen with a probability of 5%.

b) The market value of a bond with a duration of 7 years is $2,000,000. Changes in the rate are normally distributed with a mean of 0 (zero) and variance of 144. If the current rate is 7.432%. What is the VAR in 4 days if a “bad day” has an occurrence of 1%.

Reference no: EM132059470

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