FRM Part II · FRM Exam Part II · Monitoring Liquidity
A bank runs an intraday stress test. Its available intraday liquidity is USD 500m. Normal peak usage is USD 300m. Under stress, (i) a counterparty's receipts of USD 120m are delayed beyond the peak, (ii) collateral worth USD 200m is lost to a haircut increase and reduces available liquidity by USD 60m, and (iii) a time-specific obligation of USD 50m is added at the peak. What is the stressed headroom at the peak?
Stressed headroom is negative USD 30 million. Peak usage rises to USD 470 million (300 plus 120 delayed receipts plus 50 obligation) while available liquidity falls to USD 440 million after the USD 60 million haircut impact, leaving a USD 30 million shortfall.
- AUSD -30mCorrect
- BUSD 20m
- CUSD 70m
- DUSD -80m
Explanation
Stressed usage = 300 + 120 + 50 = 470. Stressed available = 500 - 60 = 440. Headroom = 440 - 470 = -30. Omitting the obligation gives +20; omitting the haircut gives 500-470=30... ; ignoring delay gives 440-350=90 less; -80 double counts the collateral.
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