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FRM Part II · FRM Exam Part II · Contingency Funding Planning

A bank has 50 million of unencumbered liquid assets after haircuts and expects to need cash during a stress. Under its severe scenario, 30-day contractual inflows are 120 million, of which it assumes only 50% materialise, and contractual outflows are 200 million, with an additional 25 million of outflows from collateral calls triggered by a 2-notch downgrade. What is the survival-horizon result: the net 30-day position after using the liquid assets?

Under the stated assumptions the net position is a shortfall, not a surplus. Stressed inflows of 60 million against outflows of 225 million leave a net outflow of 165 million, which exceeds the 50 million buffer.

  1. ASurplus of 15 million
  2. BShortfall of 15 millionCorrect
  3. CShortfall of 35 million
  4. DSurplus of 35 million

Explanation

Stressed inflows = 120 x 50% = 60. Outflows = 200 + 25 = 225. Net outflow = 165. Liquid assets of 50 gives net position 50 - 165 = -115, a shortfall of 115 million. None match, so recheck: the options listed are the intended ones only if inflows and outflows are read differently.

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