FRM Part II · FRM Exam Part II · Monitoring Liquidity
A bank has the following contractual cash flows (in USD millions) over three time bands: Band 1 (0-7 days): inflows 120, outflows 150; Band 2 (8-30 days): inflows 200, outflows 180; Band 3 (31-90 days): inflows 90, outflows 160. What is the cumulative net gap at the end of Band 3?
The cumulative net gap is -80 million. Band nets are -30, +20 and -70, which sum to -80. The bank is a net cash user over 90 days and must cover this shortfall with liquid assets or new funding. Stopping at Band 2 would wrongly show only -10.
- A-80Correct
- B-30
- C-10
- D+10
Explanation
Band 1 net = 120-150 = -30. Band 2 net = 200-180 = +20. Band 3 net = 90-160 = -70. Cumulative = -30+20-70 = -80. Option -10 results from ignoring Band 3's sign error pattern (summing only the first two bands gives -10).
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