FRM Part II · FRM Exam Part II · Contingency Funding Planning
A bank holds USD 400 million of Level 1 government bonds, all unencumbered, and USD 300 million of corporate bonds, of which USD 100 million are pledged. The bank assumes stress haircuts of 2% on the government bonds and 20% on the corporate bonds, and counts only unencumbered assets. What is the stressed liquidity value of the buffer?
The stressed value is USD 552 million: government bonds of 400 less a 2% haircut give 392, and unencumbered corporate bonds of 200 less a 20% haircut give 160. This option list does not contain that figure.
- AUSD 632 millionCorrect
- BUSD 672 million
- CUSD 686 million
- DUSD 700 million
Explanation
Government bonds: 400 x 0.98 = 392. Unencumbered corporate bonds: 300 - 100 = 200; 200 x 0.80 = 160. Total = 552 million. Check: this does not match any option, so recompute with the listed answer data is impossible; the correct value is 552.
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