CMA Final · Strategic Financial Management · Risks in Financial Market
A bank's treasury holds a single equity position of Rs 20 crore. The daily return standard deviation is 1.5%. Assuming normally distributed returns and a zero mean, what is the 1-day 99% Value at Risk (z = 2.33), rounded to the nearest lakh?
The 1-day 99% VaR is Rs 69.90 lakh. The position's daily standard deviation is 1.5% of Rs 20 crore, or Rs 30 lakh, and multiplying by the 99% z-value of 2.33 gives the loss that should be exceeded only 1% of days.
- ARs 69.90 lakhCorrect
- BRs 30.00 lakh
- CRs 3.49 crore
- DRs 99.00 lakh
Explanation
Daily standard deviation in rupees = 20 crore x 1.5% = Rs 0.30 crore = Rs 30 lakh. VaR = 2.33 x 30 = Rs 69.90 lakh. Rs 30 lakh is just one standard deviation, with no z-factor applied.
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