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Question
Refer to the information below for questions 15-17:As a portfolio manager of Asian Investments and Co., you like to evaluate the Value-at-Risk of your currency holding of Taiwanese and Japanese assets. Use the historical data in the past 20 years, you obtain the following information regarding the exchange rate between USD ($) with Taiwanese Dollar (TWD) and Japanese Yen (JPY):
| DEAR and VAR Calculations: | |||
| Time Horizon (Days) = | 10 | ||
| Lower Tail Probability= | 0.005 | ||
| $ Amount | Standard Deviation | Adverse Move | |
| DEAR (TWD) | 1,000,000 | 0.0050 | 2.58 |
| DEAR (JPY) | 1,000,000 | 0.0100 | 2.58 |
| DEAR (TWD and JPY) | 2,000,000 | ? | 2.58 |
where DEAR is daily earnings-at-risk, standard deviation is the volatility calculated by the historical data, adverse move is the t-value of the lower bound of the distribution of asset value.
Please calculate the DEARs for TWD and JPN in USD.
A) $9,892.55; $22,544.78
B) $11,842.32; $22,784.71
C) $15,672.22; $14,784.56
D) $11,928.93; $52, 874.78
E) $12,892.39; $25,784.78
Answer
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