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

A bank wants to follow the principle that it should actively manage its intraday liquidity positions and risks. Which of the following actions best demonstrates this principle during a stress event in which a major correspondent bank delays its incoming payments?

The bank should monitor intraday positions in real time, prioritize time-critical payments, and use available intraday credit or collateral to continue settling. Waiting for end-of-day data is too late, halting all payments spreads stress to counterparties, and responsibility cannot be passed to the correspondent bank.

  1. ARely on end-of-day balances to confirm that obligations have been met after the settlement cycle closes
  2. BMonitor intraday positions in real time, prioritize time-critical payments, and use available intraday credit or collateral to keep settlingCorrect
  3. CStop sending all outgoing payments until all expected incoming payments are received
  4. DTransfer responsibility for intraday monitoring to the correspondent bank

Explanation

Active management means monitoring positions in real time, prioritizing critical payments, and mobilizing available intraday sources such as credit lines or collateral. Waiting for end-of-day data is too late. Halting all payments could cause the bank to fail its own obligations and transmit stress to counterparties. A bank cannot outsource its responsibility to a correspondent.

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