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

A bank starts the day with 200 million of central bank reserves. During the day, cumulative payments sent total 850 million and cumulative payments received total 700 million, with no other flows. Ignoring intraday credit, what is the bank's net cumulative position at day end and its maximum use of own liquidity if the lowest point of the cumulative net position was -190 million?

The net cumulative position at day end is -150 million (700 received minus 850 sent). The maximum intraday usage is the trough of the cumulative net position, 190 million, which the 200 million reserves cover, leaving 10 million at the low point.

  1. ANet position -150 million; the bank used 150 million of reserves, which is the peak usage
  2. BNet position -150 million; peak usage of 190 million, and reserves remain positive at the low pointCorrect
  3. CNet position +50 million; peak usage of 190 million
  4. DNet position -150 million; peak usage of 350 million because reserves are added to the low point

Explanation

Net flow = 700 - 850 = -150 million. Peak usage is the largest cumulative net outflow, 190 million. Reserves of 200 million exceed 190, so the balance is 10 million at the low point and 50 million at day end. Using 150 as the peak ignores the intraday trough.

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