CRO Liquidity Risk Management 3

Question 1

Under Basel III liquidity requirements, what is the minimum acceptable Liquidity Coverage Ratio (LCR) for large internationally active banks?

Accepted Answer

100%

Answer

Basel III requires large internationally active banks to maintain an LCR of at least 100%, meaning HQLA must fully cover net cash outflows in a 30-day stress scenario.

Question 2

A Chief Risk Officer should establish liquidity risk limits based primarily on:

Accepted Answer

The institution's risk appetite and applicable regulatory requirements

Answer

Liquidity risk limits should be established based on the institution's stated risk appetite, strategic objectives, and regulatory requirements to ensure both internal resilience and compliance.

Question 3

What is 'secured funding' in liquidity risk management?

Accepted Answer

Borrowing collateralized by assets pledged to the lender

Answer

Secured funding involves borrowing where the lender has a claim on specific collateral assets (such as in repurchase agreements), providing the lender with security in case of borrower default.

Question 4

Which of the following actions would MOST effectively reduce an institution's liquidity risk?

Accepted Answer

Extending the maturity profile of liabilities and diversifying funding sources

Answer

Extending liability maturities and diversifying funding sources reduces reliance on short-term volatile funding, thereby improving the institution's structural liquidity resilience.

Question 5

What does 'encumbered assets' mean in the context of liquidity risk?

Accepted Answer

Assets pledged as collateral and therefore unavailable for immediate liquidity use

Answer

Encumbered assets are those pledged as collateral (e.g., in repo transactions or derivative margining), making them unavailable to raise funds in a liquidity stress scenario.

(CRO) Chief Risk Officer Certification Practice Test

(CRO) Chief Risk Officer Certification Practice Test

CRO Liquidity Risk Management 3