Portfolio Ltd., a company based in Munich, has foreign trading assets in three major currencies, JPY, USD, and GBP. Bayes has a short position of JPY 720 million, a long position of USD 7.7 million, and a long position of GBP 6.3 million. Daily observations for the last 12 months show that the spot rates’ standard deviations are 0.5% for both EUR/JPY and EUR/GBP and 1% for EUR/USD. The correlation between EUR/JPY and EUR/GBP is +50%, between EUR/JPY and EUR/USD is +40%, and between EUR/USD and EUR/GBP is +60%. What is the risk (VaR) of the overall position over a 5-day interval at the 95% confidence level? Assume 0.90 GBP = 1 EUR, 1.1 USD = 1 EUR and 120 JPY = 1EUR

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Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.