) REGARDING THE NOTES TO EXHIBIT 1, THE GIPS STANDARDS WOULD MOST LI...

6.) Regarding the notes to Exhibit 1, the GIPS standards would most likely imply that: A. Notes 1 and 7 are required and Note 2 is recommended. B. Notes 3 and 8 are required and Note 6 is recommended. C. Notes 1 and 2 are required and Note 7 is recommended. Pearson Dena Pearson is a recent hire at a large international bank. She is working in the risk management group, from which she receives several assignments. Pearson’s first assignment is to address an inquiry from a client, Joseph Varnet. Varnet asks for clarification on the contents of a risk report he received that describes value at risk (VaR). Varnet states: This month’s report states that using a 95% confidence level, the portfolio has an average daily VaR of $1 million. Please clarify what this means. I would like to know what happens to the VaR measure if the confidence level is increased to 99% and if the frequency is changed from daily to monthly. In the notes, the report states that the VaR is based on the analytical or variance–covariance method. Has the bank considered using other methods for calculating VaR? Pearson’s responds to Varnets inquiry as follows: The VaR calculation in the monthly report assumes 250 trading days in a year and indicates that the daily portfolio loss will likely exceed $1 million approximately 12 to 13 times over a one-year period. A change to a 99% confidence level would provide a lower VaR estimate. The bank uses the analytical method because other methods have significant disadvantages. For example, the disadvantages of the historical simulation method are the model: