Financial Risk Manager Part 1

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Explanation:

Calculation:

Position in USD: EUR 2,000,000 × $1.40/EUR = $2,800,000
Daily volatility: 34 bps = 0.0034 (0.34%)
Z-score at 95% confidence: 1.645
DEAR = Position × Volatility × Z-score
DEAR = $2,800,000 × 0.0034 × 1.645
DEAR = $9,520 × 1.645
DEAR = $15,659

The correct answer is C. $15,659. This represents the maximum 1-day loss the bank could experience on its EUR position with 95% confidence, due only to FX risk.

Explanation:

Calculation:

Position in USD: EUR 2,000,000 × $1.40/EUR = $2,800,000
Daily volatility: 34 bps = 0.0034 (0.34%)
Z-score at 95% confidence: 1.645
DEAR = Position × Volatility × Z-score
DEAR = $2,800,000 × 0.0034 × 1.645
DEAR = $9,520 × 1.645
DEAR = $15,659

The correct answer is C. $15,659. This represents the maximum 1-day loss the bank could experience on its EUR position with 95% confidence, due only to FX risk.

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192.1. A bank has a EUR 2.0 million trading position in spot Euros. The spot EUR/USD exchange rate is `$1.40` (EUR is the base currency, and USD is the quote currency). The daily volatility of the EUR/USD exchange rate is 34 basis points (bps). If the bank assumes the exchange rate volatility is normally distributed, what is the 95% confident daily earnings at risk (DEAR) of the position in US DOLLAR terms, i.e., the 95% dollar VaR due only to foreign exchange (FX) exposure?

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Last updated: July 7, 2026 at 10:06

a) $7,997

b) $11,185

c) $15,659

d) $28,642