Financial Risk Manager Part 2

Get started today

Ultimate access to all questions.

Explanation:

Component VaR allows risk managers to decompose the total portfolio VaR into the contributions of individual assets or sub-portfolios. This helps identify the different sources of an increase in total portfolio risk, making option C correct. Option A is incorrect because VaR assumes normal market conditions and liquid markets; it does not accurately capture the risk of illiquid assets. Option B is incorrect because robust VaR systems, by identifying and aggregating risks, make it more difficult, not easier, for rogue traders to hide large risky positions. Option D is incorrect because VaR can be calculated and monitored in real-time if the firm's systems are sufficiently advanced.

Explanation:

Comments (0)

No comments yet.

Question 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?

Exam-Like

Community

UAnonymous

Last updated: July 5, 2026 at 07:28

VaR is a reliable and easily performed method to measure the riskiness of illiquid assets.

VaR systems can generate accurate market risk estimates but at the expense of making “rogue trading” easier.

VaR measures can help identify the different sources of an increase in total portfolio risk.

VaR systems can monitor the risk levels of investments at regular intervals but not in real time.