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CMA Final · Risk Management in Banking and Insurance · Market Risk Management

Under the Basel framework, the trading book of a bank is mainly distinguished from the banking book by which feature?

The trading book holds instruments kept with trading intent or as hedges against other trading positions, and they are valued at market prices daily. Held-to-maturity loans and investments at amortised cost sit in the banking book, which is why the other descriptions are incorrect.

  1. APositions held with trading intent or to hedge other trading book positions, and marked to marketCorrect
  2. BPositions held to maturity and valued at amortised cost
  3. CLoans extended to retail customers
  4. DStatutory reserves maintained with the central bank

Explanation

The trading book comprises financial instruments held with trading intent or to hedge other trading book items, and they are marked to market. Held-to-maturity positions and loans belong to the banking book, so option B describes the banking book and is wrong.

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