Skip to content

FRM Part II · FRM Exam Part II · Liquidity Risk Reporting and Stress Testing

A bank's liquidity stress report shows a 30-day survival horizon under a combined idiosyncratic and market-wide scenario. Which interpretation is most appropriate for the report's reader?

A 30-day survival horizon means the bank's counterbalancing capacity is sufficient to meet modeled stressed net outflows for 30 days under the specified scenario. It is conditional on scenario and assumption quality, not a guarantee against all events or a capital measure.

  1. AThe bank is guaranteed to survive 30 days under any scenario
  2. BThe bank's counterbalancing capacity covers the modeled stressed net outflows for 30 days, subject to scenario and assumption limitsCorrect
  3. CThe bank's capital ratio will remain above minimum for 30 days
  4. DThe bank needs no contingency funding plan beyond day 30

Explanation

A survival horizon says the liquidity buffer and other counterbalancing capacity are sufficient to meet modeled stressed outflows for that period. It depends on scenario severity and assumptions such as haircuts and run-off rates, so it is not a guarantee, is not a capital measure, and does not remove the need for contingency planning.

Did you get it right without looking?

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

Practise Liquidity Risk Reporting and Stress TestingFree diagnostic mock

More Liquidity Risk Reporting and Stress Testing questions