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FRM Part 2 - LOD > 4 - Liquidity and Treasury Risk Measurement & Management > Flashcards

4 - Liquidity and Treasury Risk Measurement & Management Flashcards

1
Q

Explain and calculate liquidity trading risk via cost of liquidation and liquidity-adjusted VaR (LVaR).

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2
Q

Identify liquidity funding risk, funding sources, and lessons learned from real cases: Northern Rock, Ashanti Goldfields, and Metallgesellschaft.

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3
Q

Evaluate Basel III liquidity risk ratios and BIS principles for sound liquidity risk management.

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4
Q

Explain liquidity black holes and Identify the causes of positive feedback trading.

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5
Q

Explain and calculate liquidity trading risk via cost of liquidation and liquidity-adjusted VaR (LVaR).

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6
Q

Identify liquidity funding risk, funding sources, and lessons learned from real cases: Northern Rock, Ashanti Goldfields, and Metallgesellschaft.

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7
Q

Evaluate Basel III liquidity risk ratios and BIS principles for sound liquidity risk management.

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8
Q

Explain liquidity black holes and Identify the causes of positive feedback trading.

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9
Q

Evaluate the characteristics of sound Early Warning Indicators (EWI) measures.

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10
Q

Identify EWI guidelines from banking regulators and supervisors (OCC, BCBS, Federal Reserve).

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11
Q

Discuss the applications of EWIs in the context of the liquidity risk management process.

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12
Q

Compare various money market and capital market instruments and discuss their advantages and disadvantages.

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13
Q

Identify and discuss various factors that affect the choice of investment securities by a bank.

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14
Q

Apply investment maturity strategies and maturity management tools based on the yield curve and duration.

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15
Q

Calculate a bank’s net liquidity position and explain factors that affect the supply and demand of liquidity at a bank.

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16
Q

Compare strategies that a bank can use to meet demands for additional liquidity.

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17
Q

Estimate a bank’s liquidity needs through three methods (sources and uses of funds, structure of funds, and liquidity indicators).

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18
Q

Summarize the process taken by a US bank to calculate its legal reserves.

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19
Q

Differentiate between factors that affect the choice among alternate sources of reserves.

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20
Q

Identify and explain the uses and sources of intraday liquidity.

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21
Q

Discuss the governance structure of intraday liquidity risk management.

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22
Q

Differentiate between methods for tracking intraday flows and monitoring risk levels.

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23
Q

Distinguish between deterministic and stochastic cash flows and provide examples of each.

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24
Q

Describe and provide examples of liquidity options and explain the impact of liquidity options on a bank’s liquidity position and its liquidity management process.

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25
Q

Describe and apply the concepts of liquidity risk, funding cost risk, liquidity generation capacity, expected liquidity, and cash flow at risk.

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26
Q

Interpret the term structure of expected cash flows and cumulative cash flows.

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27
Q

Discuss the impact of available asset transactions on cash flows and liquidity generation capacity.

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28
Q

Compare and contrast the major lines of business in which dealer banks operate and the risk factors they face in each line of business.

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29
Q

Identify situations that can cause a liquidity crisis at a dealer bank and explain responses that can mitigate these risks.

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30
Q

Assess policy measures that can alleviate firm-specific and systemic risks related to large dealer banks.

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31
Q

Compare and contrast the major lines of business in which dealer banks operate and the risk factors they face in each line of business.

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32
Q

Identify situations that can cause a liquidity crisis at a dealer bank and explain responses that can mitigate these risks.

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33
Q

Assess policy measures that can alleviate firm-specific and systemic risks related to large dealer banks.

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34
Q

Identify best practices for the reporting of a bank’s liquidity position.

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35
Q

Compare and Interpret different types of liquidity risk reports.

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36
Q

Explain the process of reporting a liquidity stress test and Interpret a liquidity stress test report.

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37
Q

Discuss the relationship between contingency funding planning and liquidity stress testing.

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38
Q

Evaluate the key design considerations of a sound contingency funding plan.

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39
Q

Assess the key components of a contingency funding plan (governance and oversight, scenarios and liquidity gap analysis, contingent actions, monitoring and escalation, and data and reporting).

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40
Q

Differentiate between the various transaction and non-transaction deposit types.

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41
Q

Compare the different methods used to determine the pricing of deposits and calculate the price of a deposit account using cost-plus, marginal cost, and conditional pricing formulas.

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42
Q

Explain challenges faced by banks that offer deposit accounts, including deposit insurance, disclosures, overdraft protection, and basic (lifeline) banking.

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43
Q

Distinguish between the various sources of non-deposit liabilities at a bank.

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44
Q

Describe and calculate the available funds gap.

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45
Q

Discuss factors affecting the choice of non-deposit funding sources.

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46
Q

Calculate overall cost of funds using both the historical average cost approach and the pooled-funds approach.

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47
Q

Describe the mechanics of repurchase agreements (repos) and calculate the settlement for a repo transaction.

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48
Q

Discuss common motivations for entering into repos, including their use in cash management and liquidity management.

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49
Q

Discuss how counterparty risk and liquidity risk can arise through the use of repo transactions.

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50
Q

Assess the role of repo transactions in the collapses of Lehman Brothers and Bear Stearns during the 2007-2009 financial crisis.

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51
Q

Compare the use of general and special collateral in repo transactions.

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52
Q

Identify the characteristics of special spreads and explain the typical behavior of US Treasury special spreads over an auction cycle.

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53
Q

Calculate the financing advantage of a bond trading special when used in a repo transaction.

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54
Q

Discuss the process of liquidity transfer pricing (LTP) and identify best practices for the governance and implementation of an LTP process.

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55
Q

Discuss challenges that may arise for banks during the implementation of LTP.

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56
Q

Compare the various approaches to liquidity transfer pricing (zero cost, average cost, and matched-maturity marginal cost).

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57
Q

Describe the contingent liquidity risk pricing process and calculate the cost of contingent liquidity risk.

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58
Q

Identify the causes of the US dollar shortage during the financial crisis of 2007-2009.

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59
Q

Evaluate the importance of assessing maturity/currency mismatch across the balance sheets of consolidated entities.

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60
Q

Discuss how central bank swap agreements overcame challenges commonly associated with international lenders of last resort.

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61
Q

Differentiate between the mechanics of foreign exchange (FX) swaps and cross-currency swaps.

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62
Q

Identify key factors that affect the cross-currency swap basis.

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63
Q

Assess the causes of covered interest rate parity violations after the financial crisis of 2007-2009.

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64
Q

Discuss how asset-liability management strategies can help a bank hedge against interest rate risk.

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65
Q

Describe interest-sensitive gap management and apply this strategy to maximize a bank’s net interest margin.

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66
Q

Describe duration gap management and apply this strategy to protect a bank’s net worth.

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67
Q

Discuss the limitations of interest-sensitive gap management and duration gap management.

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68
Q

Evaluate the characteristics of illiquid markets.

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69
Q

Examine the relationship between market imperfections and illiquidity.

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70
Q

Assess the impact of biases on reported returns for illiquid assets.

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71
Q

Explain the unsmoothing of returns and its properties.

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72
Q

Compare illiquidity risk premiums across and within asset categories.

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73
Q

Evaluate portfolio choice decisions on the inclusion of illiquid assets.

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FRM Part 2 - LOD (31 decks)

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