Skip to content

FRM Part II · FRM Exam Part II · Liquidity and Reserves Management: Strategies and Policies

A bank has collateral posted at a central securities depository, and some securities are encumbered in repo transactions. When assessing available intraday liquidity sources, which treatment of these securities is most appropriate?

Only unencumbered assets that can be readily pledged or sold should count as intraday liquidity sources. Assets already pledged in repo or other transactions are committed and cannot be reused, so including them at any value overstates the available buffer.

  1. ACount only unencumbered assets that can be readily pledged or monetized, and exclude assets already pledgedCorrect
  2. BCount all securities owned irrespective of encumbrance because ownership is retained
  3. CCount encumbered assets at full value but apply a haircut to unencumbered ones
  4. DCount securities only if they are denominated in the bank's home currency regardless of encumbrance

Explanation

Encumbered assets are already committed and cannot be used again to raise liquidity. Only unencumbered, operationally accessible assets count toward the buffer. Retaining legal ownership does not make pledged assets available.

Did you get it right without looking?

One question tells you little. A timed set on Liquidity and Reserves Management: Strategies and Policies shows your real accuracy, how long you take and where you lose marks.

Practise Liquidity and Reserves Management: Strategies and PoliciesFree diagnostic mock

More Liquidity and Reserves Management: Strategies and Policies questions