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Assessing Foreign Exchange Risk Associated to a Public Debt Portfolio in Ghana Using the Value at Risk Technique

Received: 30 January 2014     Published: 30 March 2014
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Abstract

VaR is a potential loss. The VaR methodology gives the definition to risk-based capital, or economic capital and confidence level reflects the risk appetite of the bank. This work is a delta-normal VaR application in the case of the Ghanaian economy. It assesses the exchange risk associated to the Ghana public debt portfolio. We used daily spot exchange rates of the Ghana cedi against the three main currencies, the dollar, the euro and the pound. We are interested in the period from 04/01/2000 to 31/12/2009. We demonstrated that the VaR result is very high and that there is a need for the government to also trade in a currency that can serve as a potential hedge against risk.

Published in International Journal of Economics, Finance and Management Sciences (Volume 2, Issue 2)
DOI 10.11648/j.ijefm.20140202.17
Page(s) 159-163
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2014. Published by Science Publishing Group

Keywords

Value- at- Risk, Public Debt Portfolio, Volatility

References
[1] Ajili, W. (2008). “A Value at Risk approach to assess exchange risk associated to a public debt portfolio: The case of a small developing economy”. World Scientific Studies in International Economics- Vol. 3. pp. 11 - 60
[2] Lopez, J. (1996). “Regulatory Evaluation of Value-at-Risk Models,” Working paper, New York Federal Reserve Bank.
[3] Jackson, P., David J. M. and William P. (1997). “Bank capital and Value-at-Risk.” Journal of Derivatives . 4(3) Spring, pp. 73–89.
[4] Crnkovic, C. and J. Drachman (1996). “A Universal Tool to Discriminate Among Risk Measurement Techniques,” Working paper, J. P. Morgan, Corp.
[5] Kupiec, P. (1995): “Techniques for verifying the accuracy of risk measurement models,” Journal of Derivatives 3, pp. 73-84.
[6] Hendricks, D. (1996). “Evaluation of Value at Risk Models using Historical Data.” Federal Reserve Bank New York Economic Policy Review 1996(April):
[7] Beder, T. S. (1995). “VaR: Seductive but dangerous.” Financial Analysts Journal 1995(Sept-Oct): pp.12-24.
[8] Giannopoulos, K. (2003): VaR modelling on long run horizons: Automation and Remote Control, 64(7), pp. 1094-1100.
[9] Singh, M. K. (1997): Value at risk using principal components analysis - For term structure-dependent securities and FX derivatives. Journal of Portfolio Management: 24(1), pp. 101-109
[10] Jorion, P. (1997): Value-at-Risk: The New Benchmark for Controlling Market Risk. Irwin, Chicago, Ill.
[11] Dowd, K. (1998): Beyond Value-at-Risk: The New Science of Risk Management, John Wiley & Sons, London.
[12] Saunder A. (1999); Credit Risk Measurement: New Approaches to Value-at-Risk and Other Paradigms John Wiley & Sons, London
[13] Bodnar, G.M., G.S. Hayt and Martson, R.S. (1998): “1998 Wharton Survey of Financial Risk Management by U.S. Non-Financial Firms”, Financial Management, Vol. 27, No. 4, pp. 70-91.
Cite This Article
  • APA Style

    Alice Constance Mensah, Ebenezer Okyere, Osei Antwi, Prince Kumi, Joseph Dadzie, et al. (2014). Assessing Foreign Exchange Risk Associated to a Public Debt Portfolio in Ghana Using the Value at Risk Technique. International Journal of Economics, Finance and Management Sciences, 2(2), 159-163. https://doi.org/10.11648/j.ijefm.20140202.17

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    ACS Style

    Alice Constance Mensah; Ebenezer Okyere; Osei Antwi; Prince Kumi; Joseph Dadzie, et al. Assessing Foreign Exchange Risk Associated to a Public Debt Portfolio in Ghana Using the Value at Risk Technique. Int. J. Econ. Finance Manag. Sci. 2014, 2(2), 159-163. doi: 10.11648/j.ijefm.20140202.17

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    AMA Style

    Alice Constance Mensah, Ebenezer Okyere, Osei Antwi, Prince Kumi, Joseph Dadzie, et al. Assessing Foreign Exchange Risk Associated to a Public Debt Portfolio in Ghana Using the Value at Risk Technique. Int J Econ Finance Manag Sci. 2014;2(2):159-163. doi: 10.11648/j.ijefm.20140202.17

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  • @article{10.11648/j.ijefm.20140202.17,
      author = {Alice Constance Mensah and Ebenezer Okyere and Osei Antwi and Prince Kumi and Joseph Dadzie and Martin Owusu Amoamah},
      title = {Assessing Foreign Exchange Risk Associated to a Public Debt Portfolio in Ghana Using the Value at Risk Technique},
      journal = {International Journal of Economics, Finance and Management Sciences},
      volume = {2},
      number = {2},
      pages = {159-163},
      doi = {10.11648/j.ijefm.20140202.17},
      url = {https://doi.org/10.11648/j.ijefm.20140202.17},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20140202.17},
      abstract = {VaR is a potential loss. The VaR methodology gives the definition to risk-based capital, or economic capital and confidence level reflects the risk appetite of the bank. This work is a delta-normal VaR application in the case of the Ghanaian economy. It assesses the exchange risk associated to the Ghana public debt portfolio. We used daily spot exchange rates of the Ghana cedi against the three main currencies, the dollar, the euro and the pound. We are interested in the period from 04/01/2000 to 31/12/2009. We demonstrated that the VaR result is very high and that there is a need for the government to also trade in a currency that can serve as a potential hedge against risk.},
     year = {2014}
    }
    

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    T1  - Assessing Foreign Exchange Risk Associated to a Public Debt Portfolio in Ghana Using the Value at Risk Technique
    AU  - Alice Constance Mensah
    AU  - Ebenezer Okyere
    AU  - Osei Antwi
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    AU  - Martin Owusu Amoamah
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    JO  - International Journal of Economics, Finance and Management Sciences
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    PB  - Science Publishing Group
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    AB  - VaR is a potential loss. The VaR methodology gives the definition to risk-based capital, or economic capital and confidence level reflects the risk appetite of the bank. This work is a delta-normal VaR application in the case of the Ghanaian economy. It assesses the exchange risk associated to the Ghana public debt portfolio. We used daily spot exchange rates of the Ghana cedi against the three main currencies, the dollar, the euro and the pound. We are interested in the period from 04/01/2000 to 31/12/2009. We demonstrated that the VaR result is very high and that there is a need for the government to also trade in a currency that can serve as a potential hedge against risk.
    VL  - 2
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Author Information
  • Mathematics and Statistics Department, Accra Polytechnic, Accra, Ghana

  • Research Department, Bank of Ghana, Accra, Ghana

  • Mathematics and Statistics Department, Accra Polytechnic, Accra, Ghana

  • Accountancy Department, Accra Polytechnic, Accra, Ghana

  • Mathematics and Statistics Department, Accra Polytechnic, Accra, Ghana

  • Mathematics and Statistics Department, Accra Polytechnic, Accra, Ghana

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