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

A bank's treasury team reports that, under its combined idiosyncratic and market-wide stress scenario, the bank can meet all net cash outflows for 45 days before its liquidity buffer is exhausted. What does this 45-day figure represent?

The 45-day figure is the survival horizon: the number of days the bank can meet stressed net cash outflows using its liquidity buffer before the buffer runs out, assuming no unusual new funding. It measures resilience under a scenario, not asset duration or liability maturity.

  1. AThe survival horizon, the length of time the bank can withstand the stress scenario without new external funding or distress asset salesCorrect
  2. BThe contractual maturity of the bank's longest-dated wholesale liability
  3. CThe time required for regulators to approve a resolution plan
  4. DThe average duration of the bank's liquid asset portfolio

Explanation

Survival horizon is the number of days a bank can cover stressed net outflows from its available liquidity resources under a given scenario. It is not a maturity or duration measure, and it has no link to regulatory approval timing.

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