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%.)

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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

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Resources

Risk of a Single Cash Position

Parametric VaR Estimation

Risk of Two Cash Positions

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