Quantifying financial risk - part 2

In this lesson

1. 0:00 Scenario setup and exchange rate basics
2. 1:21 Finding the Z score from probability tables
3. 3:35 Calculating daily standard deviation
4. 4:26 Converting euros to US dollars
5. 5:19 Value at risk formula and interpretation

About this lesson

This lesson walks you through a practical scenario where a US company exports to the eurozone, showing you how to find Z-scores from probability tables, convert between currencies, and interpret what your value at risk figure actually means for business decisions. By the end, you'll understand why this calculation matters and when it signals the need for hedging strategies to protect against currency losses. The video breaks the calculation into clear steps: identifying the confidence level, finding the corresponding Z-score, calculating daily standard deviation, and converting your result into the appropriate currency. You'll see how to avoid common pitfalls, like multiplying instead of dividing by the exchange rate, and learn a practical check to verify your answer makes sense. This technique is essential for FM, AFM, and risk management papers where quantifying exposure to financial risk is regularly tested.

Duration: 7m