Measuring market risk in foreing exchange markets: an application with value at risk (VAR) method

With the development and liberalization of markets, the concept of financial risk has also developed. The risk meant loss once but now it also means gain. From a financial perspective, the concept of risk is a very diverse concept. Notedly, the market risk and the measurement of this risk have come to the forefront because of the globalization and integration of the markets. Foreign exchange is an important element in terms of financial and commercial relations for every business at global level operating in real markets. Exchange rate fluctuations are a serious risk in emerging markets, particularly if they are not stable and are highly volatile. While losses are minimized by a strong risk management, risk-based analyzes provide more controlled growth in terms of financial institutions as well as countries. VaR is one of the calculation methods that is being used to measure market risk. This method poses a certain possibility of lose-making to the market to be invested. VaR is defined as the expected loss of a certain time interval and a certain confidence level. The purpose of the study is to calculate market risk of currency markets. For this purpose, EURO / TR and USD / TR assets are being examined in foreign currency market. The ZT portfolio in the study covers the years 2007-2011 and the portfolio XY in the years 2012-2016. The VaRs of the ZT and XY portfolios are calculated and compared. At the end of the study it was determined that the ZT portfolio covering the crisis period had a higher VaR portfolio than the VaR of the VaR portfolio. Keywords: Risk, Risk Management, Value-at-Risk (VaR).