FRM Part II · FRM Exam Part II · Liquidity Risk
Under the Basel III LCR, a bank has USD 500 million of stable retail deposits with a 5% run-off rate and USD 300 million of unsecured wholesale funding from non-financial corporates (non-operational) with a 40% run-off rate. It expects inflows of USD 80 million from performing loans. Ignoring other items, total net cash outflows over 30 days are:
Net outflows are USD 65 million: retail run-off of 25 plus corporate run-off of 120 gives gross outflows of 145, less 80 of inflows. The figure of 145 is gross outflows before inflows are deducted.
- AUSD 65 million
- BUSD 145 million
- CUSD 105 millionCorrect
- DUSD 225 million
Explanation
Outflows are 500 × 5% = 25 plus 300 × 40% = 120, total 145. Subtract inflows of 80, giving net outflows of 65. Since the question asks for net outflows, the correct figure is 65; 145 is gross outflows only and ignores the inflow offset.
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