# Risk of a Single Cash Position

BetaSquare are a USD-based firm with one asset: JPY 14 billion in cash. What is the 95% worst-case loss over a 1-day period?

You have the following information:

• The daily price volatility of the JPY/USD exchange rate is 1.78%, using a 95% confidence level. (Note: This implies that 1 standard deviation equals 1.78%/1.65 = 1.08%.)

• The JPY/USD exchange rate is 140.

Solution:

 Step Calculation Comment 1. Choose a probability of loss 5% =95% confidence worst-case loss 2. Measure value in USD $100 million Assuming 140 JPY/USD 3. 1-day volatility JPY/USD (or 1.65 standard deviations) 1.78% Data Set 4. Calculate Risk$100 million * 1.78 =$1.78 Market value volatility This means that your 95% worst-case loss due to adverse movements in the JPY IUSD over 1 day would be$1.78 million (or, you have a 5% chance of losing \$1.78 million or more overnight). Now let's view an example of two cash positions. To calculate the total risk of two or more positions, however, we need to include correlations.

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