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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 holds USD 60 billion of long-term dollar assets. It funds USD 15 billion with dollar deposits and USD 45 billion with short-term wholesale dollar funding, of which one third matures within the next month. In a freeze where none of the maturing wholesale funding is rolled over, what is the immediate dollar funding gap for the month, ignoring other flows?

The funding gap is USD 15 billion. One third of the USD 45 billion wholesale dollar funding matures within the month, and with no rollover that amount must be replaced through swaps, asset sales or central bank facilities. Deposits and the total wholesale stock are not the relevant base.

  1. AUSD 45 billion
  2. BUSD 15 billionCorrect
  3. CUSD 5 billion
  4. DUSD 20 billion

Explanation

One third of USD 45 billion is USD 15 billion maturing within the month. With no rollover the bank must find USD 15 billion. USD 45 billion is the total wholesale funding, a wrong base. USD 5 billion divides by nine instead of three, and USD 20 billion adds the deposits mistakenly to the gap.

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