, ®
@GARP
FRM I Financial Risk Manager
2024
®
EXAM PART II
Liquidity and
Treasury Risk
Measurement
and Management
@Pearson
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"Liquidity Risk," by John C. Hull, reprinted from Risk Management and 3rd Edition (2011), by permission of John Wiley & Sons, Inc. All rights
Financial Institutions, 5th Edition (2018), by permission of John Wiley & Sons, reserved. Used under license from John Wiley & Sons, Inc.
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"Liquidity Transfer Pricing: A Guide to Better Practice," Financial
"Liquidity and Leverage" by Allan M. Malz, reprinted from Financial Risk Stability Institute Occasional Paper No. 10, by Joel Grant, June 2011,
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"Early Warning Indicators" by Shyam Venkat and Stephen Baird, "The US Dollar Shortage in Global Banking and the International Policy
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"The Investment Function in Financial Services Management" and "Liquidity
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"Monitoring Liquidity," by Antonio Castagna and Francesco Fede,
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research.stlouisfed.org/datatrends/pdfs/mt/20110301/mtpub.pdf.
"Liquidity Risk Reporting and Stress Testing," by Moorad Chaudhry,
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, Contents
Chapter 1 Liquidity Risk 1 Chapter 2 Liquidity and
Leverage 17
1.1 Liquidity Trading Risk 2
1.1.1 The Importance of Transparency 3 2.1 Funding Liquidity Risk 18
1.1.2 Measuring Market Liquidity 4 Maturity Transformation 18
1.1.3 Liquidity-Adjusted VaR 5 Liquidity Transformation 19
1.1.4 Unwinding a Position Optimally 5 Bank Liquidity 20
1.1.5 Other Measures of Market Liquidity 6 Structured Credit and Off-Balance-Sheet
Funding 22
1.2 Liquidity Funding Risk 6
Funding Liquidity of Other Intermediaries 23
1.2.1 Sources of Liquidity 6
Systematic Funding Liquidity Risk 24
1.2.2 Reserve Requirements 9
1.2.3 Regulation 9 2.2 Markets for Collateral 26
Structure of Markets for Collateral 26
1.3 Liquidity Black Holes 11
Economic Function of Markets for Collateral 28
1.3.1 Positive and Negative Feedback
Traders 11 Prime Brokerage and Hedge Funds 29
1.3.2 Leveraging and Deleveraging 12 Risks in Markets for Collateral 29
1.3.3 Irrational Exuberance 13 2.3 Leverage and Forms of Credit
1.3.4 The Impact of Regulation 14 in Contemporary Finance 31
1.3.5 The Importance of Diversity 14 Defining and Measuring Leverage 31
Summary 14 Margin Loans and Leverage 33
Short Positions 34
Further Reading 15
Derivatives 35
Practice Questions and Problems 15 Structured Credit 36
Further Questions 16 Asset Volatility and Leverage 37
iii
