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 5%. What is the total margin, excluding any mark-to-market margin, that applies to this position?
The total margin is Rs 1,70,000. VaR margin of 12% on Rs 10,00,000 is Rs 1,20,000, and extreme loss margin of 5% is Rs 50,000. Both are added together, since they are separate components of the upfront margin collected on the position.
- ARs 1,20,000
- BRs 50,000
- CRs 1,70,000Correct
- DRs 70,000
Explanation
VaR margin = 12% of 10,00,000 = Rs 1,20,000. Extreme loss margin = 5% of 10,00,000 = Rs 50,000. Total = 1,20,000 + 50,000 = Rs 1,70,000. Rs 1,20,000 omits the extreme loss margin, and Rs 50,000 omits VaR.
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