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FRM Part II · FRM Exam Part II · Contingency Funding Planning

Which practice best ensures that a contingent funding buffer will actually be usable in a crisis?

Regularly testing monetization of buffer assets, such as small repo or sale transactions, and confirming operational readiness and collateral mobility across entities and currencies best ensures usability. Concentration in one entity or book-value measurement weakens reliability in a crisis.

  1. AHolding all buffer assets in a single legal entity to simplify reporting
  2. BRegularly testing monetization of buffer assets through repo or sales, and ensuring operational readiness and access to collateral across entities and currenciesCorrect
  3. CValuing buffer assets at book value rather than market value
  4. DExcluding central bank facilities from the CFP to avoid stigma

Explanation

Operational testing proves assets can be converted to cash and that collateral can be mobilized where and in the currency needed. Concentrating in one entity creates transferability problems, book values overstate proceeds, and excluding central bank facilities ignores a legitimate source.

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