FRM Part II · FRM Exam Part II · Liquidity Transfer Pricing: A Guide to Better Practice
A bank's retail unit gathers USD 400 million of core deposits. The behavioral analysis shows 70% is stable with an effective term of 4 years (matched funding rate 3.6%), and 30% is volatile, valued at the overnight rate of 2.0%. Treasury credits the unit on a behavioral basis. What is the annual funding credit in USD million?
The credit is 12.48 million dollars: 280 million of stable deposits at 3.6% gives 10.08 million, and 120 million of volatile deposits at 2.0% gives 2.40 million.
- A12.24Correct
- B8.00
- C14.40
- D10.00
Explanation
Stable portion: 400 x 0.70 = 280; 280 x 3.6% = 10.08. Volatile portion: 120 x 2.0% = 2.40. Total = 12.48? Recompute: 10.08 + 2.40 = 12.48. The listed key must equal this, so it is not 12.24.
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