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Explanation:
Marginal VaR of British Pound =
= \left(\frac{\`7}{\66`}\right) \times 0.80 = 0.085
Component VaR of British Pound = (VaR<sub>Portfolio</sub> × β × ())
= $7 \text{ million} \times 0.80 \times \left(\frac{`26`}{\`66}\right) = \
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Q.3148 Graham Bell is a currency strategist at the currency trading desk of Himilton Commercial Bank. His portfolio has a current exposure of $26 million in British Pound and $40 million in Turkish Lira. The portfolio beta of British Pound is 0.80 while that of the Lira is 1.35. The diversified portfolio VaR is $7 million. Based on this information, what are the marginal VaR and the component VaR of the British Pound position?
A
MVaR<sub>British Pound</sub> : 0.085; CVaR<sub>British Pound</sub> : $2.2 million
B
MVaR<sub>British Pound</sub> : 2.2; CVaR<sub>British Pound</sub> : $0.85 million
C
MVaR<sub>British Pound</sub> : 0.22; CVaR<sub>British Pound</sub> : $8.5 million
D
MVaR<sub>British Pound</sub> : 0.45; CVaR<sub>British Pound</sub> : $2.95 million