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FRM Part II · FRM Exam Part II · Fundamental Review of the Trading Book

A bank under Basel 2.5 had a 10-day 99% VaR average of 20 million, a 10-day stressed VaR average of 35 million, and an IRC of 15 million. Using a multiplier of 3 for both VaR and stressed VaR, and ignoring other charges, what is its market risk capital charge for these components? Assume the VaR-based charge uses the average multiplied by 3 and prior-day VaR levels are below that.

The capital charge is 180 million: three times the 20 million average VaR gives 60 million, three times the 35 million stressed VaR gives 105 million, and the 15 million IRC is added without a multiplier.

  1. A225 millionCorrect
  2. B165 million
  3. C180 million
  4. D210 million

Explanation

VaR charge = 3 x 20 = 60. Stressed VaR charge = 3 x 35 = 105. Add IRC 15. Total = 60 + 105 + 15 = 180. Let us recheck: 180 is the sum, so the correct answer is 180 million, not 225 (which would use a multiplier of 3 on the IRC too).

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