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

A bank's treasury team prepares a daily liquidity report for senior management. Which of the following best describes the primary purpose of such a report under sound liquidity risk reporting practice?

The main purpose of a liquidity report is to give management and the board timely, accurate information so the bank's liquidity position can be compared with limits and risk tolerance and acted on. It supports decisions but does not replace contingency planning or serve capital calculations.

  1. ATo give management timely, accurate information so that liquidity positions can be compared against limits and risk toleranceCorrect
  2. BTo replace the need for a contingency funding plan by documenting past funding sources
  3. CTo calculate regulatory capital requirements for market risk
  4. DTo disclose proprietary funding strategies to all counterparties

Explanation

Liquidity reports exist to give management and the board timely, accurate and relevant information on the liquidity position relative to limits and risk appetite, so action can be taken. They do not replace contingency funding planning, are not about market risk capital, and are not for disclosure to counterparties.

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