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FRM Part II · FRM Exam Part II · The US Dollar Shortage in Global Banking and the International Policy Response

A bank has USD 40 billion of dollar assets and USD 10 billion of dollar deposits and equity. It funds the USD 30 billion gap with one-month FX swaps, converting local currency into dollars. In a stress, swap counterparties will roll only 60% of maturing swaps. Ignoring other sources, what is the dollar funding shortfall at the next rollover, and what is it as a share of dollar assets?

The shortfall is USD 12 billion, or 30% of dollar assets. Only 60% of the USD 30 billion of swaps is rolled, so 40% or USD 12 billion goes unfunded, and USD 12 billion divided by USD 40 billion of assets equals 30%.

  1. AUSD 12 billion; 30%Correct
  2. BUSD 18 billion; 45%
  3. CUSD 30 billion; 75%
  4. DUSD 12 billion; 75%

Explanation

Unrolled swaps equal 40% of USD 30 billion = USD 12 billion. As a share of USD 40 billion of assets this is 30%. USD 18 billion is the rolled amount, a wrong-base mistake; USD 30 billion assumes no rollover; 75% divides by the wrong base.

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