Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. Explain value at Risk as a measure of market risk and the key elements involved when interpreting VAR

Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. Explain value at Risk as a measure of market risk and the key elements involved when interpreting VAR

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter12: Managing Economic Exposure And Translation Exposure

Section: Chapter Questions

Problem 3IEE

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Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. Required:
Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. Required (iv) Consider a position consisting of a K200,000 investment in Asset A and a K300,000 investment in Asset B. Assume that the daily volatilities of the assets are 1.5% and 1.8% respectively, and that the coefficient of correlation between their returns is 0.4. What is the five day 95% Value at Risk (VaR) for the portfolio (95% confidence level represents 1.65 standard deviations on the left side of a normal distribution)?
Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. Explain value at Risk as a measure of market risk and the key elements involved when interpreting VAR. Outline the three methods used to calculate VAR. For hedging purpose, the client is of the opinion that the delta normal method is the most appropriate method. Advise the client on the appropriateness of the method. (iv) Consider a position consisting of a K200,000 investment in Asset…
Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. Required Explain value at Risk as a measure of market risk and the key elements involved when interpreting VAR. Outline the three methods used to calculate VAR. For hedging purpose, the client is of the opinion that the delta normal method is the most appropriate method. Advise the client on the appropriateness of the method. Consider a position consisting of a K200,000 investment in Asset A and a K300,000 investment in Asset B. Assume…
Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. 1. Outline the three methods used to calculate VAR.
Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. (i) Explain value at Risk as a measure of market risk and the key elements involved when interpreting VAR. (ii) Outline the three methods used to calculate VAR. (iii) For hedging purpose, the client is of the opinion that the delta normal method is the most appropriate method. Advise the client on the appropriateness of the method. (iv)Consider a position consisting of a K200,000 investment in Asset A and a K300,000…
Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB`s current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options. -Explain value at Risk as a measure of market risk and the key elements involved when interpreting VAR. -Outline the three methods used to calculate VAR. -For hedging purpose, the client is of the opinion that the delta normal method is the most appropriate method. Advise the client on the appropriateness of the method.…
Mr. Karim is an investment banking analyst at Benchmark Financial, and hewants to calculate the expected rate of return for a security. He finds that thesystematic risk “b” of the security is 1.2. He also knows that the risk-free rateis 3%, and the expected return of the market is 12%. Mr. Karim uses the CAPMmodel to calculate the expected rate of return and determine if theinvestment should be undertaken. Please show the computation as perdecision taken by Mr. Karim.
In recent times bank is witnessing volatility in interest rates as well as foreign exchange rates .Thus putting pressure on the banks for maintaining a good balance among spreads, profitability and long-term sustainability. As a risk mitigating manager write a short note on asset – Asset liability management (ALM) and its importance Discuss the two main type of ALM Technique used in banks.
You are an investment analyst at an asset management firm. Your colleague, the in-house economist, has analyzed all the risky securities in your economy - A, B and C. He provides you with the following statistics: Securities Expected Returns Standard Deviation 0.35 0.25 0.18 A B C 0.15 0.10 0.075 0.03 Risk-Free The Correlation between A and B is 0.2, between B and C is 0.5, and between A and C is 0.3. The prevailing risk-free rate is 3%. What is the Sharpe ratio of the market portfolio in this economy?
QUESTION TWO Wila is a risk-analyst at Deli Bank (DB), a commercial bank with operations in Zambia. DB is currently expanding its operations to include proprietary trading and is reviewing its risk management policies. DB uses Value at Risk (VaR) models to monitor its risk exposures. DB's current portfolio of currencies contains only long positions. The volatility of the currencies in its portfolio has recently increased, and Wila expects volatility to remain high over the next several quarters. As a result, she has hedged the portfolio using currency options.
What comment can be made about this? Investing in cryptocurrency can help provide diversification in a portfolio since historically, cryptos have shown no price correlation with the U.S. stock market (Levy, 2021). Also, unlike banks and other intermediaries, the blockchain is open 24/7, the transactions provide transparency plus anonymity because though the crypto wallet is viewable to the public, the owners of the wallets are anonymous. And, there is a lower risk of error since the transactions involve little human interaction (Voigt & Rosen, 2021).