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FRM Part II · FRM Exam Part II · Intraday Liquidity Risk Management

A bank's treasury team is reviewing how its payment activity affects liquidity during the business day. Which description best captures intraday liquidity risk?

Intraday liquidity risk is the risk that a bank cannot meet payment and settlement obligations when they fall due during the business day, even if it is solvent and can fund overnight. It concerns the timing mismatch of intraday payments and receipts.

  1. AThe risk that the bank cannot meet payment and settlement obligations at the time they fall due during the day, even if it is solvent and can fund itself overnightCorrect
  2. BThe risk that overnight interest rates rise between the close of one day and the opening of the next
  3. CThe risk that the bank's long-term funding costs exceed the yield on its loan book
  4. DThe risk that the bank's capital ratio falls below the regulatory minimum at quarter end

Explanation

Intraday liquidity risk concerns the timing of payments and receipts within the business day. A bank can be solvent and have overnight funding yet still fail to meet an obligation when it is due intraday. The other options describe overnight rate risk, structural funding risk and capital risk.

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