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FRM Part II · FRM Exam Part II · The US Dollar Shortage in Global Banking and the International Policy Response

A non-US bank has USD 200 billion of dollar assets. Its dollar liabilities consist of USD 40 billion of dollar-denominated stable funding (equity and long-term debt), USD 60 billion of short-term wholesale dollar borrowing, and the remainder raised by swapping euros into dollars with a 3-month FX swap. If the swap market becomes unavailable and the bank must replace the swap funding, how much dollar funding must it find, and what share of its dollar assets does this represent?

Swap-sourced dollar funding is the residual: 200 minus 40 minus 60, which equals USD 100 billion. That is 50% of the bank's dollar assets. This is the amount it must replace if the FX swap market closes, since the other funding lines are not lost.

  1. AUSD 100 billion; 50% of dollar assetsCorrect
  2. BUSD 140 billion; 70% of dollar assets
  3. CUSD 160 billion; 80% of dollar assets
  4. DUSD 60 billion; 30% of dollar assets

Explanation

Swap funding equals 200 - 40 - 60 = 100 billion, or 50% of assets. Check: 40+60+100 = 200. The 140 figure adds the wholesale borrowing and swap funding (100+60=160 is also not correct); 140 would be total short-term funding less nothing relevant. The question asks only for the swap funding that disappears, so wholesale borrowing is excluded.

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