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Integrated Mini Case CALCULATING DEAR ON AN FI'S TRADING PORTFOLIO An FI wants to obtain the DEAR on its trading portfolio. The portfolio consists of the following Fixed-income securities: 0 The FI has a $1 million position in a six year, zero daily close. Looking back at the daily percenma coupon bond with a face value of $1,543,302. The changes in the exchange rate of the euro to dolle bond is trading at a yield to maturity of 7.50 percent. for the past year, the FI finds that the volatilty The historical mean change in daily yields is 0.0 per standard deviation (o) of the spot exchange rate wa cent and the standard deviation is 22 basis points. 55.5 basis points (bp). (i) The FI also holds a 12-year, zero-coupon bond Equities with a face value of $1,000,000. The bond is trad- ing at a volatlity of the potential adverse move in yields is s00). The B- 65 basis points. Foreign exchange contracts: The FI has a e2.0 million long trading position in Correlations (p,) among assets are as follows spot euros at the close of business on a particular day lowing securities The exchange rate is e0.80/S1, or $1.25/e at The FI holds a $2.5 million trading position in stoci ield to maturity of 6.75 percent. The price that reflect the U.S. stock market index (eg, the S8 1. Over the last year, the standard deia tion of the stock market index was 175 basis points /s U.S. Stock Inder -0.2 -0.3 6-Year, Zero Coupon 12-Year, Zero Coupon 0.75 6-year, zero couporn 12-year, zero couporn E/$ U.S. stock index 0.40 045 025 1. Calculate the DEAR of this trading portfolio

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