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Revision to the Basel II market risk framework requires banks to establish and uphold procedures for computing adjustments to the current value of illiquid securities. A bank’s ability to sell or hedge less liquid positions may not be supported by assumptions made abut liquidity within the market risk capital charge due to unforeseen market events. As a result, a valuation adjustment is needed on a regular basis in order to precisely determine a positions current illiquidity status. This adjustment is made regardless of whether the position is marked to market, marked to model, or obtained through third-party valuation. Which of the following factors are considered when determining the accuracy and suitability of the adjustment for illiquid positions?
A. I, III and IV. B. II, III and IV. C. I, II and III. D. I, II, III and IV. |