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 is 12% and the extreme loss margin is 3.5%. What total margin must be collected from the client on this position, ignoring any other margins?
The total margin is Rs 1,55,000. VaR margin of 12% plus extreme loss margin of 3.5% gives 15.5% of the Rs 10,00,000 trade value. Counting only VaR or only extreme loss margin would understate the amount the broker must collect.
- ARs 1,20,000
- BRs 1,55,000Correct
- CRs 35,000
- DRs 2,05,000
Explanation
Total margin = VaR margin + extreme loss margin = 12% + 3.5% = 15.5% of Rs 10,00,000 = Rs 1,55,000. Rs 1,20,000 omits extreme loss margin; Rs 35,000 omits VaR margin.
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