FRM Part II · FRM Exam Part II · Intraday Liquidity Risk Management
Under the principle that a bank should be able to meet payment obligations at the time expected, which operational practice best supports the bank's management of time-specific obligations?
The bank should identify time-specific obligations, such as CLS pay-ins or securities settlement cut-offs, and make sure enough liquidity is available before each deadline. Treating payments equally, deferring all to late in the day, or waiting for all inflows risks missed deadlines and gridlock.
- ATreating all payments as equally urgent and processing them in the order received
- BDelaying all outgoing payments to late in the day to conserve liquidity
- CIdentifying time-specific obligations, such as CLS pay-ins and securities settlement deadlines, and ensuring sufficient liquidity is available ahead of their deadlinesCorrect
- DSettling time-specific obligations only after confirming that all incoming payments have arrived
Explanation
Banks should identify obligations with fixed deadlines and ensure liquidity is available beforehand, since missing them can cause penalties and systemic spillovers. Equal treatment ignores urgency. Systematically delaying payments leads to gridlock and harms other participants. Waiting for all inflows may cause missed deadlines.
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