Skip to content

FRM Part II · FRM Exam Part II · Monitoring Liquidity

A bank's liquidity gap report shows a large negative cumulative gap in the 1-week bucket but a large positive gap in the 3-month bucket. What is the most appropriate interpretation?

The bank faces near-term funding pressure: obligations due within a week exceed inflows, and later inflows cannot meet earlier needs. It must show it can bridge the short-dated gap using liquid assets or secured funding, since long-horizon netting hides timing mismatches.

  1. AThe bank has no liquidity risk because the gaps net to positive over three months
  2. BThe bank faces near-term funding pressure and must show it can bridge the short-dated gap through liquid assets or secured fundingCorrect
  3. CThe bank should ignore the 1-week bucket because short buckets are unreliable
  4. DThe bank has excess liquidity in the short term

Explanation

A negative short-term cumulative gap means outflows exceed inflows soon, and later positive inflows cannot pay obligations due earlier. The bank must cover the gap with liquid assets, repo or other available funding. Netting across buckets hides this timing mismatch.

Did you get it right without looking?

One question tells you little. A timed set on Monitoring Liquidity shows your real accuracy, how long you take and where you lose marks.

Practise Monitoring LiquidityFree diagnostic mock

More Monitoring Liquidity questions