FRM Part II · FRM Exam Part II · Monitoring Liquidity
A bank's treasury team reports its Liquidity Coverage Ratio as the stock of high-quality liquid assets (HQLA) divided by total net cash outflows over a specified stress horizon. Which horizon and minimum ratio apply under the Basel III LCR standard?
The LCR compares unencumbered high-quality liquid assets with total net cash outflows over a 30-calendar-day stress period, and the ratio must be at least 100%. Longer horizons such as one year belong to the Net Stable Funding Ratio, not the LCR.
- A30 calendar days; at least 100%Correct
- B90 calendar days; at least 100%
- C30 calendar days; at least 80%
- DOne year; at least 100%
Explanation
The Basel III LCR requires HQLA to cover total net cash outflows over a 30-calendar-day stress scenario, with the ratio at or above 100% (after the phase-in). The 90-day and one-year horizons are not the LCR horizon; one-year relates to the NSFR.
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