A Disadvantage of the Back Simulation Approach to Estimate Market

question 102

True/False

A disadvantage of the back simulation approach to estimate market risk exposure is the limited confidence level based on the number of observations.

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Definitions:

Ending Inventory

The value of goods available for sale at the end of an accounting period, after accounting for purchases and the cost of goods sold.

Lower-of-cost-or-market

An accounting principle requiring that inventory be recorded at either the historical cost or the market value, whichever is lower, to ensure assets are not overstated.

Market

A place or platform where buyers and sellers meet to trade goods, services, or financial instruments.

Lower-of-cost-or-market

An accounting principle that requires inventory to be recorded at the lower of its original cost or current market value, ensuring assets are not overstated on the balance sheet.