Free GARP FRM Part II Liquidity and Treasury Risk Practice Questions
Practice 66 free Liquidity and Treasury Risk questions for GARP FRM Part II.
Sample Questions
Question 1
Easy
The Basel III Net Stable Funding Ratio (NSFR) is designed primarily to:
Solution
C is correct. The NSFR equals Available Stable Funding (ASF) divided by Required Stable Funding (RSF) and must be at least 100%. ASF weights liability and equity sources by their stability over a one-year horizon, while RSF weights assets and off-balance-sheet items by their liquidity characteristics. The ratio's purpose is to ensure that long-dated, illiquid assets are funded with reasonably stable liabilities over a one-year period, addressing structural maturity mismatches that the LCR's 30-day horizon does not capture.
Question 2
Medium
A treasury team is designing an idiosyncratic liquidity stress scenario for the bank's internal liquidity adequacy assessment. Which set of assumptions is MOST consistent with a properly designed idiosyncratic stress?
Solution
C is correct. An idiosyncratic stress is firm-specific: counterparties react to news about the bank itself. The hallmarks are elevated run-off on retail deposits (especially uninsured balances), loss of access to unsecured wholesale markets, and widening haircuts in secured funding. Market-wide liquidity may remain functional for peers — what fails is the firm's own access. Combined firm-plus-market scenarios layer in broader market dislocation, but a pure idiosyncratic case isolates firm-specific funding loss.
Question 3
Hard
A bank reports the following 30-day stressed cash flow projections under Basel III: gross stressed outflows of 400 million USD and gross contractual stressed inflows of 350 million USD. The bank holds 80 million USD of Level 1 HQLA and no Level 2 assets. Under the LCR, contractual inflows used to offset outflows are capped at 75% of gross outflows. What is the bank's LCR?
Solution
D is correct. The inflow cap limits recognized inflows to million. Pre-cap inflows of 350 million exceed this ceiling, so recognized inflows are 300 million. Net cash outflows = million. With HQLA of 80 million, , which falls below the 100% Basel minimum and would require remediation through additional HQLA, longer-dated funding, or a reduction in stressed outflow drivers.