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FRM Part II · FRM Exam Part II · Monitoring Liquidity

A treasury team monitors the share of its funding that comes from its five largest wholesale counterparties. Total funding is USD 2,000 million and the five largest providers supply USD 700 million. A new internal limit is 30%. What is the correct assessment?

Concentration is 35 percent, which breaches the 30 percent limit. It is 700 million divided by total funding of 2,000 million. The treasury should diversify funding sources or tighten limits on the largest providers. Using a wrong denominator can wrongly suggest compliance.

  1. AConcentration is 35%, which breaches the limitCorrect
  2. BConcentration is 28.6%, within the limit
  3. CConcentration is 35%, within the limit
  4. DConcentration is 70%, which breaches the limit

Explanation

Concentration = 700/2,000 = 35%, above the 30% limit, so there is a breach. The 28.6% figure arises from dividing by 2,450, using the wrong base.

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