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A definition of market risk capital is the amount of market losses which a company can...

A definition of market risk capital is the amount of market losses which a company can sustain and still remain in business. Is VAR a good measure of market risk capital? Give reasons &/or examples to support your answer yes or no.
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Answer #1

Value at risk is the statistical technique by which the company calculates its financial risk. A finance manager undertakes three types of decisions. They are: Investment decision, Financing decision and Dividend decision. Financing decision is the decision regarding the way in which the capital will be used. The financing decision may lead to profits or losses. The finance manager should be ready to handle both the situations. It should be able to make proper use of the profits as well as be able to handle losses.

Value at risk is a proper measure for the market risk capital. It will help to determine the risk and the losses that the company might face in a particular time period.

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