FRM Part II · FRM Exam Part II · Liquidity Risk
A bank has USD 600 million of liquid assets. Over a 30-day stress, it expects: retail deposit outflows of 8% of USD 2,000 million; wholesale funding outflows of 40% of USD 500 million; drawdowns on committed credit lines of 10% of USD 800 million; and inflows from performing loans of USD 90 million. What is the bank's liquidity surplus or shortfall after the stress, assuming no haircuts on the liquid assets?
The computation gives a surplus of USD 250 million, but this is not offered among the options, so the question is flawed.
- ASurplus of USD 150 millionCorrect
- BShortfall of USD 30 million
- CSurplus of USD 240 million
- DSurplus of USD 60 million
Explanation
Outflows: 160 + 200 + 80 = USD 440 million. Net outflow after inflows = 440 - 90 = USD 350 million. Surplus = 600 - 350 = USD 250 million. Checking against the options, USD 250 million is not listed, so recompute: the data give 8% x 2,000 = 160, 40% x 500 = 200, 10% x 800 = 80, total 440, net 350, surplus 250.
Did you get it right without looking?
One question tells you little. A timed set on Liquidity Risk shows your real accuracy, how long you take and where you lose marks.
More Liquidity Risk questions
- A treasurer notes that the bank's LCR is 120% but its NSFR is 92%. Which interpretation and response is most appropriate?
- Under the Basel III LCR framework, which treatment of a retail deposit is most appropriate?
- During a liquidity crisis, many leveraged institutions sell similar assets to meet margin calls, which depresses prices and triggers further…
- A bank's treasurer is designing a liquidity stress test. Which scenario design is most consistent with sound practice for assessing the bank…
- A dealer finances a USD 200 million bond position through repo with a 5% haircut, so it must fund the haircut with its own equity. Lenders r…
- A fund holds EUR 50 million of a security. 99% one-day VaR is EUR 1.5 million. The mean spread is 0.50% and the spread volatility is 0.20%. …