Answer-first summary for fast verification
Answer: VaR measures can help identify the different sources of an increase in total portfolio risk.
**Correct Answer: C** **Explanation:** C is correct because VaR can be reverse engineered to understand where risk comes from using VaR tools. This allows risk managers to identify the different sources contributing to an increase in total portfolio risk. **Why other options are incorrect:** - **A is incorrect:** VaR systems cannot capture some risks due to the illiquid nature or short history of certain assets. Illiquid assets pose challenges for VaR measurement because they lack reliable market prices and sufficient historical data. - **B is incorrect:** VaR doesn't increase the number of rogue trades. On the contrary, having a VaR system in place may discourage rogue traders by providing better monitoring and control mechanisms. - **D is incorrect:** VaR can monitor investments in real-time, not just at regular intervals. Modern VaR systems are capable of providing continuous risk monitoring.
Author: LeetQuiz .
Ultimate access to all questions.
A risk manager at an investment firm is making a presentation about VaR to a group of newly hired junior analysts. The manager explains the use of VaR in controlling and monitoring risk and discusses the benefits and limitations of VaR. Which of the following statements would be correct for the manager to make?
A
VaR is a reliable and easily performed method to measure the riskiness of illiquid assets.
B
VaR systems can generate accurate market risk estimates but at the expense of making "rogue trading" easier.
C
VaR measures can help identify the different sources of an increase in total portfolio risk.
D
VaR systems can monitor the risk levels of investments at regular intervals but not in real time.
No comments yet.