Risk of Two Cash Positions

You now have two assets: JPY 1 billion + THB 4 billion. What is the risk over a 1-day period?

Solution

Step	Calculation	Comment
1. Measure value in USD	$200 million	140 JPY/USD and 40 THB/USD
2. 1-month volatility	JPY/USD 1.78% THB/USD 1.96%
3. What are risks?/$	On JPY $ 1.78 million On THB $ 1.96 million	Data Set
4. What is total risk?	$ 1.78 + $ 1.96 m = $ 3.74 million	This is incorrect you cannot just add the risks!

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Undiversified risk	$3.74. million
Diversification benefit	-$0.45 million
Net risk	$3.29 million

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Resources

Risk of Two Cash Positions

Risk of a Single Cash Position

Time Scaling of Volatility

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