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FRM Part II · FRM Exam Part II · Contingency Funding Planning

A bank's treasurer is drafting the purpose statement of the institution's contingency funding plan (CFP). Which statement best describes the primary objective of a CFP?

The main objective of a contingency funding plan is to document the strategies, responsibilities and actions the bank will use to meet its liquidity needs in a stress event. It supplements normal liquidity limits and is not an earnings forecast or an intraday payment tool.

  1. ATo set the daily limits on intraday payment system overdrafts
  2. BTo provide a documented set of strategies, roles and actions for meeting liquidity needs during a stress eventCorrect
  3. CTo forecast the bank's earnings under baseline economic conditions
  4. DTo replace the bank's regular liquidity risk limits during normal operations

Explanation

A CFP is a forward-looking, documented response framework that sets out strategies, responsibilities and procedures to raise funds and preserve liquidity when stress arises. Intraday limits and earnings forecasts are separate tools. A CFP complements, rather than replaces, ordinary liquidity limits.

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