NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management
A broker's client buys shares worth Rs 10,00,000 in the cash segment. The applicable VaR margin plus extreme loss margin is 20% of the value. The client has Rs 1,50,000 of cash collateral with the broker and nothing else. What additional margin is needed to cover the requirement for this position?
The shortfall is Rs 50,000. The required margin is 20% of Rs 10,00,000, which is Rs 2,00,000, and the client holds Rs 1,50,000 of collateral, so the additional margin needed is the difference of Rs 50,000.
- ARs 50,000Correct
- BRs 2,00,000
- CRs 8,50,000
- DRs 1,50,000
Explanation
Required margin = 20% x 10,00,000 = Rs 2,00,000. Collateral available is Rs 1,50,000. Shortfall = 2,00,000 - 1,50,000 = Rs 50,000. Rs 8,50,000 wrongly subtracts collateral from the full value, and Rs 1,50,000 is simply the collateral held.
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