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FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing

A bank reports the following contractual cash flows (in USD millions) for the overnight to 30-day bucket: inflows of 420 and outflows of 560. Its cumulative mismatch is evaluated against the total assets of 14,000. What are the net contractual mismatch and the mismatch as a percentage of total assets?

The net contractual mismatch is minus 140 million, because inflows of 420 less outflows of 560 leaves a shortfall. Relative to total assets of 14,000 million, that is minus 1.0 percent, a funding gap the bank must cover.

  1. A+140 and +1.0%
  2. B-140 and -1.0%Correct
  3. C-140 and -0.4%
  4. D-980 and -7.0%

Explanation

Net mismatch = 420 - 560 = -140. Divided by total assets of 14,000 gives -1.0%. Option +140 reverses the sign, -0.4% uses the wrong base, and -980 adds the flows instead of netting them.

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