medium · FRM Part 2 Liquidity & Treasury Risk
A fund manager is worried about 'Market Liquidity' versus 'Funding Liquidity.'
Which of the following events is a direct manifestation of Funding Liquidity risk?
- A large sell order placed in an especially thin market drops a stock price by roughly 5% before completion.
- The correlation between two otherwise unrelated asset classes rises from 0.3 to 0.8 suddenly during a severe market crash.
- A bank is unable to roll over its short-term commercial paper and must sell assets at a loss to meet a cash obligation.
- The bid-ask spread quoted on a benchmark sovereign bond widens from 2 bp to 20 bp amid a period of extreme volatility and stress.
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