The Value at Risk (VAR) provides information about the potential size of the expected loss given a level of probability.

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The statement concerns what Value at Risk (VaR) conveys about potential losses. 
Option 1 (TRUE): This would claim VaR describes the potential size of the expected loss at a given probability level. In risk management, VaR is defined as the threshold loss value such that the probability of a loss exceeding this value is at a specified level (e.g., 5%). It does not quantify the expected magnitude of losses beyond that threshold, so interpreting VaR as the expected loss is a mischaracterization. 
Option 2 (FALSE): VaR is a risk measure that identifies a cutoff loss, not the average or expected shortfall. It answers the question: 'What is the maximum loss not exceeded with a given confidence level?' The average of the losses beyond VaR (the tail) is not provided by VaR itself. If one wants the expected size of losses given that they exceed VaR, that would be the Conditional Value at Risk (CVaR), also known as Expected Shortfall. 
Why the first option is incorrect: the phrase 'potential size of the expected loss' incorrectly conflates VaR with the expected shortfall; VaR does not tell you the expected magnitude conditional on exceeding the threshold. 
Why the second option is incorrect only if you misunderstood VaR as providing an average loss, which it does not; it precisely provides a cutoff at a specified tail probability, not the average tail loss. 
In summary, VaR communicates a loss threshold at a chosen probability, while the statement claims it conveys the size of the expected loss, which it does not. This distinction is central to applying VaR correctly in risk assessment.

BU.232.715.81.SP25 HW3

The Value at Risk (VAR) provides information about the potential size of the expected loss given a level of probability.

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