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Answer: risk budgeting.
This describes risk budgeting - the process of allocating a total risk limit (5% daily VaR) across different risk types (market, credit, operational) and business units. Risk budgeting involves determining how much risk to take in different areas while staying within overall risk tolerance.
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To manage market risks, an investment firm allocates a total 5% daily VaR limit among market, credit, and operational risks, as well as across its three international business units. This is an example of:
A
position limits.
B
risk budgeting.
C
scenario limits.
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