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CAIIB Paper 2: Bank Financial ManagementModule B: Risk ManagementUnit 14: Value at Risk (VaR) & Market Risk

Q1. A bank holds a trading portfolio of Rs. 100 Crores with a daily standard deviation of 1.5%. Assuming a 99% confidence level (z-score = 2.33), what is the 1-day Value at Risk (VaR)?

Rs. 4.500 Crores

Rs. 1.500 Crores

Rs. 2.475 Crores

Rs. 3.495 Crores

Incorrect Answer

Formula: 1-Day VaR = Portfolio Value * σ * Z(99%)

1-day VaR = Portfolio Value * Daily Volatility (σ) * Z-score = 100 Crores * 1.5% * 2.33 = 100 * 0.015 * 2.33 = Rs. 3.495 Crores.

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