FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing
A bank holds high-quality liquid assets (HQLA) of USD 90 million after haircuts. Its 30-day stressed cash outflows are USD 150 million and stressed inflows are USD 60 million. Assuming no inflow cap binds, what is its liquidity coverage ratio (LCR)?
The LCR is 100%. Net 30-day stressed outflows equal USD 150 million less USD 60 million inflows, or USD 90 million. Dividing HQLA of USD 90 million by net outflows of USD 90 million gives 1.00. Using gross outflows would wrongly give 60%.
- A60%
- B100%Correct
- C150%
- D90%
Explanation
LCR = HQLA / net cash outflows over 30 days. Net outflows = 150 - 60 = 90. LCR = 90/90 = 100%. Using gross outflows gives 60%, a common error because inflows are ignored.
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