FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing
A bank holds USD 60 million of high-quality liquid assets (HQLA) after haircuts. Projected 30-day stressed cash outflows are USD 110 million and projected stressed inflows are USD 70 million. Inflows are capped at 75% of outflows. What is the liquidity coverage ratio (LCR)?
The LCR is 150%. Stressed inflows of USD 70 million are below the 75% cap of USD 82.5 million, so net outflows are 110 minus 70, or USD 40 million. Dividing HQLA of USD 60 million by 40 million gives 150%.
- A150%Correct
- B120%
- C54.5%
- D85.7%
Explanation
Inflow cap = 75% x 110 = 82.5, and the inflows of 70 are below it, so 70 is used. Net outflows = 110 - 70 = 40. LCR = 60/40 = 150%. Using gross outflows gives 54.5%, ignoring inflows.
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