FRM Part I · FRM Exam Part I · Banks
A bank has HQLA of $18 billion. Under the Basel III Liquidity Coverage Ratio framework, its expected total cash outflows over the next 30 days under stress are $22 billion and expected cash inflows are $4 billion (well below the 75% cap on inflows). What is the bank's LCR?
The LCR is 100%. It equals HQLA of $18 billion divided by net 30-day stressed outflows of $18 billion, which is $22 billion outflows less $4 billion inflows. Ignoring inflows would wrongly give 81.8%.
- A81.8%
- B100.0%Correct
- C122.2%
- D90.0%
Explanation
LCR = HQLA / (outflows - inflows) = 18 / (22 - 4) = 18/18 = 100%. Ignoring inflows gives 18/22 = 81.8%, which is wrong because eligible inflows reduce net outflows. Using 22/18 inverts the ratio, giving 122.2%.
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