Skip to content

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

A bank's treasury team notes that its customers' payments are settled through a real-time gross settlement (RTGS) system. Which statement best describes how an RTGS system settles payments and the resulting intraday liquidity implication for the bank?

In an RTGS system each payment is settled individually, gross and with finality in central bank money as it is processed. The bank therefore needs enough intraday liquidity to fund each outgoing payment, rather than relying on end-of-day netting of positions.

  1. APayments are settled individually and with finality in central bank money as they are processed, so the bank needs sufficient intraday funds for each paymentCorrect
  2. BPayments are accumulated and netted at end of day, so the bank only needs liquidity for its net position
  3. CPayments are settled on a deferred basis the next morning, so intraday liquidity is not needed
  4. DPayments are settled through bilateral credit lines between banks, so central bank money is not required

Explanation

RTGS settles each payment individually, gross, in real time and with finality in central bank money. This makes liquidity needs depend on gross outflows rather than net positions. Deferred net settlement is the model in the distractors that reduces liquidity needs but increases settlement risk.

Did you get it right without looking?

One question tells you little. A timed set on Intraday Liquidity Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Intraday Liquidity Risk ManagementFree diagnostic mock

More Intraday Liquidity Risk Management questions