RBS 2003 Annual Report Download - page 107

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105
Annual Report and Accounts 2003
Operating and financial review
The VaR for the Group’s trading portfolios segregated by type of market risk exposure is presented in the tables below.
Period
end Maximum Minimum Average (1)
Trading VaR £m £m £m £m
2003
Interest rate 27.4 14.5 5.7 9.4
Currency 0.8 2.5 0.7 1.3
Equity 0.4 1.4 0.2 0.5
Diversification effects (1.2)
Total 7.4 14.2 5.6 9.4
2002
Interest rate 28.4 11.6 6.0 9.0
Currency 1.2 2.5 0.4 1.2
Equity 0.6 1.0 0.2 0.5
Diversification effects (1.8)
Total 8.4 11.8 5.6 9.1
Notes:
(1) Calculated as the arithmetic average of daily VaR figures.
(2) Includes credit spreads.
Trading
The principal focus of the Group’s trading activities is client
facilitation - providing products to the Group’s client base at
competitive prices. The Group also undertakes: market making
– quoting firm bid (buy) and offer (sell) prices with the intention
of profiting from the spread between the quotes; arbitrage –
entering into offsetting positions in different but closely related
markets in order to profit from market imperfections; and
proprietary activity – taking positions in financial instruments as
principal in order to take advantage of anticipated market
conditions. The main risk factors are interest rates, credit
spreads and foreign exchange.
Financial instruments held in the Group’s trading portfolios
include, but are not limited to, debt securities, loans, deposits,
securities sale and repurchase agreements and derivative
financial instruments (futures, forwards, swaps and options).