FRM Part II · FRM Exam Part II · Liquidity Stress Testing
A bank holds HQLA of USD 90 million after applicable haircuts. Under the LCR stress scenario, projected cash outflows over 30 days are USD 150 million and projected cash inflows are USD 60 million (all inflows are within the 75% cap on outflows). What is the LCR?
The LCR is 100%. Net cash outflows are USD 150 million minus USD 60 million inflows, which is USD 90 million, and the inflows are under the 75% cap. Dividing HQLA of USD 90 million by net outflows of USD 90 million gives 100%.
- A60%
- B100%Correct
- C150%
- D90%
Explanation
Net outflows = 150 - 60 = 90 million. Inflows of 60 are below the cap of 75% x 150 = 112.5, so no limit applies. LCR = 90/90 = 100%. Using gross outflows gives 60%, the common mistake.
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