Skip to content

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

A bank's treasurer reports that, under its combined idiosyncratic and market-wide stress scenario, the bank's counterbalancing capacity covers all projected net outflows for 45 days before a shortfall appears. In liquidity stress testing terminology, what does this 45-day figure represent?

The 45-day figure is the survival horizon: the length of time the bank can meet net cash outflows under the stated stress scenario using its counterbalancing capacity before a funding shortfall arises. It differs from the LCR, which uses a fixed 30-day window and is expressed as a ratio.

  1. AThe survival horizon under that scenarioCorrect
  2. BThe liquidity coverage ratio calculation period
  3. CThe behavioral maturity of core deposits
  4. DThe residual maturity of the bank's longest-dated wholesale funding

Explanation

The survival horizon is the number of days a bank can meet its obligations under a defined stress scenario using available liquid resources before a cash shortfall occurs. The LCR uses a fixed 30-day window and is a ratio, not a count of days to shortfall. Deposit behavioral maturity and wholesale funding maturity describe other things.

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