VAR is an absolute measure of risk. It does not take into account the difference in the size of the portfolio. The same level of VAR might represent different level of risk for different portfolios or companies. So its not very appropriate to compare two companies just on the basis of VAR.
Average trading revenue/Average trading VAR on the other hand represents how much revenue are you able to generate by taking extra risk. This ratio has gone up for N-bank and there was no change in the ratio for T-bank indicating that trading revenue per unit of risk has improved for N-bank.
Average trading revenue/Average trading VAR on the other hand represents how much revenue are you able to generate by taking extra risk. This ratio has gone up for N-bank and there was no change in the ratio for T-bank indicating that trading revenue per unit of risk has improved for N-bank. so by this can’t we say that n bank is less riskier .or since it’s trading revenue ..that makes us say it’s more volatile and therefore more risky for N bank
Yes that makes the bank’s earnings more volatile but, in the question, and the options supported, there is nowhere mentioned about the volatility. We just have to conclude from what is given in the question. If you are getting confused with Option A, then see just because the VAR of T-bank has gone up from 2016 to 2017 and the opposite for N-bank, we cannot conclude that trading activities are riskier for T-bank. The VAR is given in ($ millions). Maybe the portfolio size of T-Bank is higher than that of N-Bank and that is why the VAR (in $ terms) has gone up. The amount cannot tell you about the riskiness of the bank. Instead VAR %age would have been a correct choice here.
VAR is an absolute measure of risk. It does not take into account the difference in the size of the portfolio. The same level of VAR might represent different level of risk for different portfolios or companies. So its not very appropriate to compare two companies just on the basis of VAR.
Average trading revenue/Average trading VAR on the other hand represents how much revenue are you able to generate by taking extra risk. This ratio has gone up for N-bank and there was no change in the ratio for T-bank indicating that trading revenue per unit of risk has improved for N-bank.
Average trading revenue/Average trading VAR on the other hand represents how much revenue are you able to generate by taking extra risk. This ratio has gone up for N-bank and there was no change in the ratio for T-bank indicating that trading revenue per unit of risk has improved for N-bank. so by this can’t we say that n bank is less riskier .or since it’s trading revenue ..that makes us say it’s more volatile and therefore more risky for N bank
Yes that makes the bank’s earnings more volatile but, in the question, and the options supported, there is nowhere mentioned about the volatility. We just have to conclude from what is given in the question. If you are getting confused with Option A, then see just because the VAR of T-bank has gone up from 2016 to 2017 and the opposite for N-bank, we cannot conclude that trading activities are riskier for T-bank. The VAR is given in ($ millions). Maybe the portfolio size of T-Bank is higher than that of N-Bank and that is why the VAR (in $ terms) has gone up. The amount cannot tell you about the riskiness of the bank. Instead VAR %age would have been a correct choice here.