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FRM Part II · FRM Exam Part II · Early Warning Indicators

A bank monitors the ratio of unencumbered high-quality liquid assets (HQLA) to 30-day net stressed outflows as an EWI. HQLA is 450 million and net stressed outflows are 360 million. The red trigger is a ratio below 110%. If outflow estimates rise by 20% with HQLA unchanged, what is the new ratio and its status?

The new ratio is 104.2%, which breaches the red trigger. Stressed outflows rise 20% from 360 to 432 million, and 450 divided by 432 gives 104.2%, below the 110% threshold. The starting ratio of 125% was comfortably compliant.

  1. A104.2%, red trigger breachedCorrect
  2. B125.0%, no breach
  3. C104.2%, no breach
  4. D86.8%, red trigger breached

Explanation

The initial ratio is 450/360 = 125%. Outflows rise 20% to 432. New ratio is 450/432 = 104.2%, below 110%, so the red trigger is breached. The 125.0% option ignores the increase, and 86.8% wrongly multiplies the ratio by 1.2 and divides inconsistently.

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