CRA Liquidity Risk Management 2

Question 1

Intraday liquidity risk refers to:

Accepted Answer

The risk of being unable to meet payment obligations during the business day when they fall due

Answer

The risk of overnight funding shortfalls in the interbank market

Answer

The risk arising from currency mismatches in cross-border daily transactions

Answer

The risk that settlement system failures cascade during peak trading hours

Question 2

Which of the following assets is NOT typically eligible as a High-Quality Liquid Asset (HQLA) under Basel III?

Accepted Answer

Investment-grade corporate bonds rated below AA-

Answer

Cash held at the central bank

Answer

Government securities carrying a 0% risk weight

Answer

Equity securities listed on a major exchange with a large free float

Question 3

A Contingency Funding Plan (CFP) is primarily designed to:

Accepted Answer

Identify alternative funding sources and specify actions to be taken during a liquidity crisis

Answer

Set daily transaction limits on interbank lending exposures

Answer

Calculate and report the bank's LCR on a daily basis to regulators

Answer

Establish credit risk appetite thresholds for the loan portfolio

Question 4

Asset-liability mismatch risk arises primarily when:

Accepted Answer

Short-term liabilities are used to fund long-term assets, creating a structural refinancing gap

Answer

A bank's credit quality deteriorates faster than its peer group average

Answer

A bank holds an excessively large proportion of government bonds relative to corporate bonds

Answer

The bank's trading portfolio becomes concentrated in a single industry sector

Question 5

In liquidity risk management, a bank's survival horizon represents:

Accepted Answer

The length of time the bank can sustain operations using its liquidity buffer without external market access

Answer

The maximum permitted maturity of high-quality liquid assets in the HQLA buffer

Answer

The minimum LCR compliance period established by the regulator

Answer

The estimated time required to fully liquidate the bank's trading book in an orderly manner

Question 6

The 'cliff effect' in liquidity risk most commonly refers to:

Accepted Answer

A sharp increase in collateral requirements or accelerated debt repayment triggered when credit ratings fall below contractual thresholds

Answer

A sudden drop in asset market values triggered by credit rating downgrades

Answer

The rapid erosion of HQLA caused by increasing repo market haircuts

Answer

The sudden loss of correspondent banking relationships following a reputational event

Question 7

Which of the following best describes the purpose of liquidity stress testing?

Accepted Answer

Simulating severe but plausible adverse scenarios to assess whether a firm's liquidity buffers are sufficient

Answer

Backtesting historical liquidity models against realized outflow data to check accuracy

Answer

Calculating the LCR and NSFR under baseline business-as-usual conditions

Answer

Measuring the bid-ask spreads of the bank's asset portfolio to assess market liquidity