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.
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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.
1. Outline the three methods used to calculate VAR.
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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. 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. (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. Required: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.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).
- 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.Benjamin Graham, the father of value investing, once said, “In the short run, the market is a voting machine, but in the long run, the market is a weighing machine.” In this quote, Benjamin Graham was referring to the key difference between the “price” and the “value” of a security. In November 2006, Citigroup’s stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007–2008 and by the end of October 2009, Citigroup’s stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Based on your understanding of stock prices and intrinsic values, which of the following statements is true? The intrinsic value of a stock is based only on perceived investor returns. A stock’s market price is often based on investors’ perceived risk in the company. You can estimate the value of a company’s stock using models such as the corporate valuation model and the dividend discount model.…Apart from risk components, several macroeconomic factors-such as Federal Reserve (the Fed) policy, federal budget deficit or surplus, international factors, and levels of business activity-influence interest rates. Based on your understanding of the impact of macroeconomic factors, identify which of the following statements are true or false: Statements When the Fed increases the money supply, short-term interest rates tend to decline. When the economy is weakening, the Fed is likely to increase short-term interest rates. During the credit crisis of 2008, investors around the world were fearful about the collapse of real estate markets, shaky stock markets, and illiquidity of several securities in the United States and several other nations. The demand for US Treasury bonds increased, which led to a rise in their price and a decline in their yields. When the economy is weakening, the Fed is likely to decrease short-term interest rates. True False
- Benjamin Graham, the father of value investing, once said, "In the short run, the market is a voting machine, but in the long run, the market is a weighing machine." In this quote, Benjamin Graham was referring to the key difference between the "price" and the "value" of a security. In November 2006, Citigroup's stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007-2008 and by the end of October 2009, Citigroup's stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Based on your understanding of stock prices and intrinsic values, which of the following statements is true? A stock's intrinsic value is based on true risk in the company. A stock's market price is based only on true investor returns. You can estimate the value of a company's stock using models such as the corporate valuation model and the dividend discount model. Which of the following companies would you choose to evaluate…Benjamin Graham, the father of value investing, once said, "In the short run, the market is a voting machine, but in the long run, the market is a weighing machine." In this quote, Benjamin Graham was referring to the key difference between the "price" and the "value" of a security. In November 2006, Citigroup's stock (NYSE: C) was trading at $49.59. Following the credit crisis of 2007-2008 and by the end of October 2009, Citigroup's stock price had plummeted to $4.27. Several banks went under, and others saw their stock prices lose more than 60% of their value. Based on your understanding of stock prices and intrinsic values, which of the following statements is true? A stock's Intrinsic value is based on true risk in the company. ○ A stock's market price is based only on true Investor returns. You can estimate the value of a company's stock using models such as the corporate valuation model and the dividend discount model. Which of the following companies would you choose to evaluate…Which statement is TRUE regarding the riskiness of money market instruments and capital market instruments? * Changing economic prospects can cause very large changes in current stock values. Distant cash flows for stocks can be known with certainty, make them riskier than money market instruments. Money market instruments have predictable cash flows and mature in one year or less, so they are much more risky. The prices of long-term capital market instruments are less sensitive to changes in interest rates than prices of short-term instruments.