FRM Part II · FRM Exam Part II · Early Warning Indicators
Which of the following early warning indicators is most clearly a market-based indicator rather than an accounting-based indicator of liquidity stress?
The bank's credit default swap spread is a market-based indicator because it comes from traded prices and updates continuously. Liquid assets to total assets, the net stable funding ratio and loan-to-deposit growth are derived from balance sheet or regulatory reporting data, so they are accounting-based measures.
- AThe bank's credit default swap spreadCorrect
- BThe ratio of liquid assets to total assets
- CNet stable funding ratio reported quarterly
- DGrowth in loans relative to deposits
Explanation
Market-based indicators are derived from traded prices, such as CDS spreads, equity prices and bond yields, and update continuously. The other options are computed from balance sheet data and reported periodically.
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