Ten Basic Steps...

Win O R S, Value At Risk, F-X …

Step One: Start Win O R S.   Additionally, open a Microsoft Word document. If this is the first Word document for this assignment, then start Word by use of the Windows Start menu. If you have previously created a Word document then you must open the document by using the following Win O R S menu tree:. Solution.. Open M-S Word document…

Step Two.  Two or more columns of historical exchange rates are required. For example, column B might hold the monthly U S D, C A D rate from January 2001 to the current date. For the same time periods, column C might hold the A-U-D, C-A-D rate.  And so on.  NOTE:  to obtain up-to-date historical exchange rate data, use the menu tree: Data. F-X Data.

Step Three. Enter variable names along row one.  NOTE: the names are entered automatically when using the Data menu.  Enter the one letter variable type, that is -- a V-Type, of letter I across row two.

Step Four. Select the menu sequence:. Applications. Finance Methods. F-X VaR Analysis. Solve VaR.   The F-X VaR Solution dialog box appears next. Set the input range. Choose the left-facing red arrow to roll-up the dialog box. Highlight all data cells that may be considered for analysis.  For example, the range may contain all cells from B-four to K five-Twenty-five.     Accept the default entry for the input box titled: Insert On range.  Click O-K to solve.

Step Five. The non-hedged solution is computed and inserted into the spreadsheet.   Specifically, the solution inserts the following tabs: Univariate Statistics.  Correlation Matrix. Covariance Matrix. And, VaR Computations.

Step Six.  Hedge the exchange rate exposure by entering dollar hedge values in column C.  Given a hedge requires taking an opposite position, if, for example, there is a $70,000, open position in a currency pair, it is possible to hedge by selling the currency.  In this case, to initiate a 50-percent hedge, on the appropriate row, enter negative $35,000 in column C.  Complete all entries in this column.  When done, select the menu sequence:. Applications. Finance Methods. F-X VaR Analysis. Calculate Hedge.

Step Seven.  The spreadsheet is updated to reflect the impact of the hedge on all dollar values.  Specifically, the decision matrix begins in column J. Additionally, a Value-at-risk probability chart is also produced.

Step Eight.  Continue the analysis.   It is possible to move the slider on the probability chart to examine the effect on the value at risk due to a change in the threshold probability level.

Step Nine: If you have completed your analysis, print the results to the attached Word document. then go to step ten. If you have additional exploratory value-at-risk scenarios to execute, go back to step four…

Step Ten:  Save, edit, and close all documents and applications.

This completes the ten basic steps for Value At Risk, F-X.

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