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

A bank starts the day with USD 400 million of central bank reserves. It has USD 150 million of unencumbered collateral that can be pledged at the central bank for an intraday credit line, haircut of 10%, and it expects to receive USD 250 million of incoming payments spread evenly through the day. Assuming the collateral is fully pledged and no other sources exist, what is the total intraday liquidity available at the end of the day, before any outflows are deducted?

Total available intraday liquidity is USD 785 million: reserves of 400, plus collateral-backed credit of 135 after a 10% haircut on 150, plus 250 of incoming payments. Ignoring the haircut would overstate liquidity at 800, which is wrong.

  1. AUSD 785 millionCorrect
  2. BUSD 800 million
  3. CUSD 650 million
  4. DUSD 535 million

Explanation

Collateral value after haircut is 150 x 0.90 = 135. Total = 400 reserves + 135 credit + 250 incoming = 785. Option 800 ignores the haircut; 650 omits incoming payments' contribution of 250 but also uses... it excludes the collateral and the haircut; 535 excludes incoming payments.

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