1. The CEO of a regional bank understands that failing to anticipate cash flow needs is one of the most serious errors that a firm can make and demands that a good liquidity-at-risk (LaR) measurement system be an essential part of the bank's risk management framework. Which of the following statements concerning LaR is correct?a. Reducing the basis risk through hedging decreases LaR.b. Hedging using futures has the same impact on LaR as hedging using long option positions.c. For a hedged portfolio, the LaR can differ significantly from the VaR.d. A firm's LaR tends to decrease as its credit quality declines.

THE CEO OF A REGIONAL BANK UNDERSTANDS THAT FAILING TO ANTICIPATE C...

2015 FRM PRACTICE EXAM

The CEO of a regional bank understands that failing to anticipate cash flow needs is one of the most serious

errors that a firm can make and demands that a good liquidity-at-risk (LaR) measurement system be an

essential part of the bank's risk management framework. Which of the following statements concerning LaR

is correct?

Reducing the basis risk through hedging decreases LaR.

Hedging using futures has the same impact on LaR as hedging using long option positions.

For a hedged portfolio, the LaR can differ significantly from the VaR.

A firm's LaR tends to decrease as its credit quality declines.