FRM Part II · FRM Exam Part II · Monitoring Liquidity
Which of the following is an example of a contingent source of liquidity risk, as opposed to a risk from contractual cash flows?
Drawdown of committed credit lines during stress is contingent liquidity risk because its timing and size depend on client behavior and events. Bond redemptions, term deposit maturities and interest payments are contractual cash flows with known dates, so they are not contingent.
- ADrawdown of committed credit lines by corporate clients during stressCorrect
- BScheduled repayment of a bond issued by the bank
- CMaturity of a term deposit on a known date
- DContractual interest payment on subordinated debt
Explanation
Contingent liquidity risk comes from cash flows whose timing and size depend on events, such as undrawn commitments being drawn in stress. Bond repayments, term deposit maturities and interest payments are contractual with known dates.
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