Skip to content

NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Risk Management

In the context of a stock broker's risk management, what is the main purpose of a 'Value at Risk (VaR) margin' collected on cash market positions?

VaR margin is collected to cover the potential loss on a position from adverse price movement over a set time horizon at a given confidence level. It is a risk-protection deposit, not a fee, a brokerage guarantee or a dividend fund.

  1. ATo cover the potential loss on a position from adverse price movement over a defined horizon at a given confidence levelCorrect
  2. BTo pay the exchange's transaction charges on every trade
  3. CTo guarantee the brokerage income of the member
  4. DTo fund the dividend payable on shares held in the position

Explanation

VaR margin estimates the likely maximum loss on a position over a specified time horizon at a stated confidence level, and it is collected upfront to cover that risk. It has nothing to do with transaction charges, brokerage or dividends.

Did you get it right without looking?

One question tells you little. A timed set on Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Risk ManagementFree diagnostic mock

More Risk Management questions