Explanation

Correct Answer: C - Funding of nostro accounts (at correspondent bank outside home market)

Understanding Intraday Liquidity Uses:

Intraday liquidity refers to funds that are available during the business day to meet payment and settlement obligations. Key uses include:

• Funding nostro accounts: Nostro accounts are accounts that a bank holds in a foreign currency at another bank (correspondent bank). These require intraday funding to facilitate cross-border payments and settlements.

• Payment and settlement systems: Real-time gross settlement (RTGS) systems require intraday liquidity to ensure timely settlement of transactions.

• Securities settlement: Funding securities transactions that settle on the same day.

Analysis of Other Options:

• A. Income funds flow: This refers to revenue generation activities, not a specific use of intraday liquidity.

• B. Term repo (as the repo seller): Term repos are longer-term funding arrangements (typically overnight or longer), not intraday liquidity uses.

• D. Intraday credit (Federal Reserve unsecured committed line of credit, LOC): This is actually a source of intraday liquidity (borrowing), not a use of it. The Federal Reserve provides intraday credit to help banks meet their payment obligations.

Key Distinction:

• Sources of intraday liquidity: Include central bank credit lines, interbank borrowing, and customer deposits.
• Uses of intraday liquidity: Include payment settlements, nostro account funding, and securities settlements.

Therefore, funding nostro accounts is a legitimate use of intraday liquidity to support cross-border payment operations.