Explanation:

Option C is correct. Value at Risk (VaR) systems are advantageous because they permit the breaking down of overall risk into its component parts (e.g., via component VaR or marginal VaR), allowing risk managers to identify specific sources of risk and effectively monitor limits.

Option A is incorrect because VaR assumes that assets can be readily liquidated at or near their current market prices within the specified holding period; thus, it may underestimate the risk of highly illiquid assets. Option B is incorrect because the implementation of robust VaR limits and consistent risk monitoring acts as a control mechanism that reduces, rather than increases, the risk of unauthorized "rogue trading." Option D is incorrect because modern VaR systems can indeed be designed to monitor risk exposures in near real-time, depending on the technological infrastructure of the firm.

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?

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Last updated: July 5, 2026 at 07:29

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.

Financial Risk Manager Part 2

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