I have calculated USD to CHF conversion in 2nd column while in 3rd column I have to convert Japanese Yen to USD, with the addition of both I have calculated the total available currency equivalent to USD which was 5100 at the beginning and for that I have calculated the total of both currency according to the rate of historic data extracted from XE.
In difference column, I have subtracted the current data from a data of day before which gave the difference and the addition amount is positive while negative currency amount is on negative sign. For standard deviation which is in the 6th column, I have kept a formula in excel sheet [STDEV.P (Data)]. Variance column is calculated by the Square root of respective Standard deviation (σ). The highest loss is VaR 1021.59, this shows the 95% confidence, and maximum loss will not further exceed $1021.59 in a single day.
Exchange rate exposure (jpy & $)
EXCHANGE RATE EXPOSURE
Value at Risk explanation
Hypothetical Equivalence of Currency
Solution of Given Equation
Hedging Risk Module
VALUE AT RISK
Developed by the chairman of JP Morgan, Dennis
Shows inherent risk summarized form of the
A simulation technique used on asset and liability
portfolios to determine their reactions to different
financial situations. (Gupta, 2017)
This system asks the management to minimize the
We must know the probability of risk and its
Variance is Square root of respective Standard
The highest loss is VaR 1021.59
This shows the 95% confidence, and maximum loss
will not further exceed $1021.59 in a single day.
VaR summarizes the total risk of the portfolio of
financial assets but it doesn't give the exact
possibility of future. It depends upon three
parameters which are confidence level, holding
period and unit of currency with three different
methodologies of Value at Risk which are Historical
Simulation, Variance Covariance method and
Monte Carlo Simulation. This assumes mark-to-
market pricing and no trading portfolio. (Jorion,
Gupta, S. (2017). Financial Derivatives THEORY,
CONCEPTS AND PROBLEMS. New Delhi: PHI Learning Pvt.
Jorion, P. (2006). Value at Risk: The New Benchmark for
Managing Financial Risk. New York: McGraw-Hill.
Reserve, F. (2017, June 18). FRB. Retrieved 08 18, 2017,
from The Fed A-Z Index:
Smiechewicz, W. J. (2002, September). The Barings Bank
Case. Fraud Magazine, pp. http://www.fraud-
XE. (2017). The world's Trusted Currency Authority. Retrieved
August 18, 2017, from