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FRM Part II · FRM Exam Part II · Intraday Liquidity Risk Management

A bank settles FX trades through CLS. Its CLS pay-in schedule requires funding in several currencies at set times. Pay-ins for the bank's EUR obligations are 400m, and it receives 250m EUR from trades in the same cycle. CLS nets multilaterally by currency, so the EUR pay-in is the net short position. A treasury manager wrongly assumes gross pay-in. By how much does assuming gross pay-in overstate the EUR intraday funding need?

The overstatement is 250m. Under CLS multilateral netting the EUR pay-in is 400m minus 250m of receipts, or 150m. Assuming a gross 400m pay-in overstates funding by the 250m of offsetting inflows that netting recognises.

  1. A250mCorrect
  2. B150m
  3. C400m
  4. D650m

Explanation

Net pay-in is 400 - 250 = 150m. Gross assumption gives 400m. Overstatement is 400 - 150 = 250m, equal to the offsetting receipts. Using 150m confuses the net with the overstatement.

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