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

A bank's available intraday liquidity sources at the start of the day consist of USD 400 million of central bank reserves, USD 250 million of unencumbered collateral eligible for intraday credit from the central bank, and USD 50 million of credit lines from other banks that it considers reliable. Over the day, it expects gross payments sent of USD 1,900 million and payments received of USD 1,700 million, with receipts arriving evenly relative to payments. If the bank's liquidity sources are the three items above, what is the maximum net cumulative negative position it could cover from these sources, and does the expected net position consume more than half of it?

Available sources total USD 700 million (400 reserves plus 250 collateral capacity plus 50 credit lines). The expected net payment outflow is USD 200 million, about 29% of that capacity, so it uses well under half of the available intraday liquidity.

  1. AUSD 700 million; no, the net outflow of USD 200 million is under halfCorrect
  2. BUSD 650 million; yes, the net outflow of USD 200 million is over half
  3. CUSD 700 million; yes, the gross outflow is over half
  4. DUSD 450 million; no, the net outflow of USD 200 million is under half

Explanation

Total sources = 400 + 250 + 50 = USD 700 million. Expected net outflow = 1,900 - 1,700 = USD 200 million, about 29% of 700, so under half. USD 650 million would omit the credit lines incorrectly, and USD 450 million would drop the collateral capacity.

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