CRO Liquidity Risk Management

Question 1

What is liquidity risk primarily concerned with?

Accepted Answer

The risk that an organization cannot meet its financial obligations as they come due without incurring unacceptable losses

Answer

Liquidity risk is the risk that an organization cannot meet its financial obligations as they come due without incurring unacceptable losses or disrupting normal business operations.

Question 2

Which of the following BEST describes funding liquidity risk?

Accepted Answer

The risk that an institution cannot raise sufficient funds to meet its obligations

Answer

Funding liquidity risk refers to the risk that an institution cannot obtain sufficient funds—through asset liquidation, borrowing, or capital issuance—to meet its obligations.

Question 3

What is a 'liquidity buffer' in risk management?

Accepted Answer

A reserve of liquid assets held to cover unexpected cash outflows

Answer

A liquidity buffer is a reserve of high-quality liquid assets that can be quickly converted to cash to cover unexpected cash outflows during a stress period.

Question 4

Which metric measures the proportion of highly liquid assets to net cash outflows over a 30-day stress period?

Accepted Answer

Liquidity Coverage Ratio (LCR)

Answer

The Liquidity Coverage Ratio (LCR) requires banks to hold enough High Quality Liquid Assets (HQLA) to cover total net cash outflows over a 30-day stress scenario.

Question 5

Market liquidity risk is BEST described as:

Accepted Answer

The risk that an asset cannot be sold quickly without significantly impacting its price

Answer

Market liquidity risk is the risk that an asset cannot be sold or liquidated quickly enough in the market without causing a significant adverse movement in its price.

(CRO) Chief Risk Officer Certification Practice Test

(CRO) Chief Risk Officer Certification Practice Test

CRO Liquidity Risk Management