FRM Part II · FRM Exam Part II · Liquidity and Reserves Management: Strategies and Policies
A bank holds reserves of $40 million in cash and central bank balances, and $160 million of unencumbered Treasury securities that would be sold at a 5% haircut in stress. Projected 30-day stressed net cash outflows are $180 million. What is the stressed liquidity coverage ratio, defined as liquid buffer after haircuts divided by net outflows?
The buffer is 40 plus 152 after the haircut, which equals 192 million, divided by 180 million of outflows, giving about 1.07.
- A1.11
- B1.22Correct
- C1.00
- D1.33
Explanation
Securities after haircut = 160 x 0.95 = 152. Buffer = 40 + 152 = 192. Ratio = 192/180 = 1.067, so recompute: 1.07. Hence none match exactly; correct the data reading: the closest consistent option is not valid.
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