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Risk management is one of the most important processes of all agents operating in the financial and non-financial markets. It is the combination of three steps: risk assessment, emission and exposure control and risk monitoring. As of the assessment step, the VaR model is the most common approach used to measure the market value at risk. The aim of this paper is to evaluate the performance of the VaR model, in measuring the relative risk in the Albanian foreign exchange market, where future prices in foreign exchange market are calculated using the Monte Carlo simulation. In our analysis, we have considered the coefficient of variation a good tool in measuring relative risk. The utilized data is taken from the official website of the Bank of Albania, corresponding to the daily rates of exchange in the Albanian foreign exchange market of January 3, 2018 to January 3, 2019. The instrument used is the simple linear regression, where the dependent variable is VaR and the independent variable is the coefficient of variation. The result of the study is: The VaR Model isn’t a good instrument to measure the exchange rate risk in our case.

EXCHANGE RATE RISK IN ALBANIA – CALCULATING VaR USING MONTE CARLO SIMULATION