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

A bank has total wholesale funding of $1,000 million from five lenders: $400m, $250m, $200m, $100m and $50m. Management sets a limit that no single lender may exceed 30% of wholesale funding. What is the minimum amount that must be refinanced from other sources to comply, assuming other lenders are unchanged?

The bank must refinance $100 million. The 30% limit on $1,000 million of wholesale funding is $300 million, and only the largest lender at $400 million exceeds it, by $100 million. The other lenders are already below the cap.

  1. A$50 million
  2. B$100 millionCorrect
  3. C$150 million
  4. D$250 million

Explanation

The limit is 30% x $1,000m = $300m. Only the $400m lender exceeds it, by $100m. The $250m lender is within the limit. Replacing $100m from new sources brings it to compliance (total stays $1,000m, though the cap's base would be unchanged).

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