FRM Part II · FRM Exam Part II · Liquidity Stress Testing
A bank has a liquidity buffer of USD 900 million after haircuts. Under a stress scenario, its net cash outflows are USD 150 million per day for the first 4 days, then USD 75 million per day thereafter. Assuming no further counterbalancing capacity, what is the survival horizon?
The survival horizon is 8 days. The first four days consume USD 600 million of the USD 900 million buffer, leaving USD 300 million, which covers four more days at USD 75 million daily outflow.
- A6 days
- B9 days
- C8 daysCorrect
- D12 days
Explanation
Outflows over the first 4 days are 4 x 150 = 600. Remaining buffer is 300. At 75 per day this lasts 4 more days. Total survival horizon = 8 days. Using 150 per day throughout gives 6 days, which ignores the lower later outflows; using 75 throughout gives 12.
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