FRM Part II · FRM Exam Part II · Monitoring Liquidity
A bank holds USD 300 million of high-quality liquid assets (HQLA). Projected 30-day stressed cash outflows are USD 500 million and stressed inflows are USD 200 million. Regulatory rules cap inflows at 75% of outflows, which does not bind here. What is the liquidity coverage ratio (LCR)?
The LCR is 100 percent. Net stressed outflows over 30 days equal 500 minus 200, or 300 million, since inflows are below the 75 percent cap. HQLA of 300 million divided by 300 million gives 100 percent. Dividing by gross outflows would wrongly give 60 percent.
- A100%Correct
- B60%
- C150%
- D200%
Explanation
Net outflows = 500 - 200 = 300 (inflows 200 are below the cap of 375). LCR = 300/300 = 100%. Using gross outflows gives 60%, a common error of ignoring inflows.
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