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

A bank's treasury team is reviewing its payment activity. Which statement best describes 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 funded overnight. It is about timing of flows within the day, not rates or credit losses.

  1. AThe risk that the bank cannot meet its payment and settlement obligations at the time they are due during the business day, even if it is solvent overnightCorrect
  2. BThe risk that the bank's overnight funding costs rise because policy rates increase
  3. CThe risk that the bank's long-term assets lose value when interest rates change
  4. DThe risk that counterparties default on loans maturing at the end of the month

Explanation

Intraday liquidity risk concerns timing within the day: having enough funds to settle payments when due. A bank can be solvent and fully funded overnight yet fail to settle on time. The other options describe interest rate, market or credit risk, not intraday timing.

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