AIMs: Define and describe the minimum liquidity coverage ratio. Describe the characteristics of high quality liquid assets (HQLA) and operational requirements for assets to qualify as HQLA.
Questions:
407.1. Which objective of Basel's liquidity framework is meant to be achieved with the minimum liquidity coverage ratio (LCR)?
a. To promote short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient funds to survive a significant stress scenario lasting for one month
b. To promote resilience over a longer time horizon, at least one year, by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing basis
c. To strengthen capital adequacy by adding a capital buffer to effectively increase core Tier 1 capital
d. To complement value at risk (VaR) and stress VaR metrics with a measures that mitigate transactions liquidity risk
407.2. Which type of liquidity risk does the minimum liquidity coverage ratio most nearly address?
a. Endogenous liquidity risk
b. Exogenous liquidity risk
c. Funding (aka, cash flow) liquidity risk
d. Asset (aka, market or product) liquidity risk
407.3. Which of the following assets, by virtue of characteristics displayed, is most likely to qualify as a high-quality liquid asset (HQLA) according to the liquidity coverage ratio (LCR)?
a. An asset with low volatility but that is not easy to value; the pricing formula is not easy to calculate and depends on strong assumptions
b. An unencumbered asset held at the bank and not rehypothecated, but that nevertheless was received in a reverse repo transaction
c. An asset with low counterparty risk but without an active and stable market
d. An asset with low volatility but that is encumbered
Answers here:
Questions:
407.1. Which objective of Basel's liquidity framework is meant to be achieved with the minimum liquidity coverage ratio (LCR)?
a. To promote short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient funds to survive a significant stress scenario lasting for one month
b. To promote resilience over a longer time horizon, at least one year, by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing basis
c. To strengthen capital adequacy by adding a capital buffer to effectively increase core Tier 1 capital
d. To complement value at risk (VaR) and stress VaR metrics with a measures that mitigate transactions liquidity risk
407.2. Which type of liquidity risk does the minimum liquidity coverage ratio most nearly address?
a. Endogenous liquidity risk
b. Exogenous liquidity risk
c. Funding (aka, cash flow) liquidity risk
d. Asset (aka, market or product) liquidity risk
407.3. Which of the following assets, by virtue of characteristics displayed, is most likely to qualify as a high-quality liquid asset (HQLA) according to the liquidity coverage ratio (LCR)?
a. An asset with low volatility but that is not easy to value; the pricing formula is not easy to calculate and depends on strong assumptions
b. An unencumbered asset held at the bank and not rehypothecated, but that nevertheless was received in a reverse repo transaction
c. An asset with low counterparty risk but without an active and stable market
d. An asset with low volatility but that is encumbered
Answers here:
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