FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing
A bank holds high-quality liquid assets (HQLA) of USD 180 million. Over the next 30 days under the stress scenario it expects cash outflows of USD 400 million and cash inflows of USD 130 million. Inflows are not capped in this case. What is its Liquidity Coverage Ratio (LCR)?
The LCR is HQLA divided by net 30-day stressed cash outflows. Net outflows are 400 minus 130, or USD 270 million, so the ratio is 180 divided by 270, which equals 66.7%. This is below the 100% minimum.
- A45.0%
- B66.7%Correct
- C138.5%
- D150.0%
Explanation
Net cash outflows = 400 - 130 = 270. LCR = 180 / 270 = 66.7%. Using gross outflows gives 45.0% (ignoring inflows). Dividing by inflows gives 138.5%, which is the wrong denominator.
Did you get it right without looking?
One question tells you little. A timed set on Liquidity Risk Reporting and Stress Testing shows your real accuracy, how long you take and where you lose marks.
More Liquidity Risk Reporting and Stress Testing questions
- A bank reports a cumulative liquidity gap table. Over the 0-7 day bucket, contractual inflows are USD 200 million and outflows are USD 260 m…
- A bank holds USD 60 million of high-quality liquid assets (HQLA) after haircuts. Projected 30-day stressed cash outflows are USD 110 million…
- A bank's contingency funding plan (CFP) is being reviewed by the risk committee. Which feature would most strengthen the CFP's usefulness du…
- A bank computes its survival horizon under a stress scenario as 30 days using a buffer of USD 600 million, with a constant stressed net outf…
- When setting the stress scenarios used to calibrate a bank's survival horizon target and CFP, which approach is most consistent with sound p…
- In a combined idiosyncratic and market-wide liquidity stress scenario, which assumption about the bank's counterbalancing capacity is most a…