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

A bank's treasury team is reviewing how payment system activity affects its funding needs during the business day. Which statement best describes intraday liquidity risk?

Intraday liquidity risk is the risk that a bank cannot meet its payment and settlement obligations when they fall due during the business day, even if it is solvent and its end-of-day position is balanced. It is a timing problem, not a longer-horizon funding issue.

  1. AThe risk that the bank cannot meet payment and settlement obligations at the time they are due during the day, even if it is solvent at end of dayCorrect
  2. BThe risk that the bank's net interest income falls because overnight rates rise
  3. CThe risk that the bank's 30-day net cash outflows exceed its stock of high-quality liquid assets
  4. DThe risk that the bank's counterparties default on derivative contracts before maturity

Explanation

Intraday liquidity risk concerns timing: failing to meet payment and settlement obligations when due during the business day, which can occur even when the bank is solvent and balanced at close. The 30-day outflow option describes the LCR horizon, not the intraday one.

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