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Explanation:
According to Basel III rules, the bank needs a minimum liquidity coverage ratio (LCR) of 100%. The LCR focuses on the bank’s ability to see it through a 30-day period of disrupted liquidity. The LCR formula is as follows:
In this case,
\text{LCR} = \frac{\`$140` \text{ million}}{\`$155` \text{ million}} = 0.9032 = 90.3\%It's evident that Exim bank has not met the minimum 100% requirement and is in violation of the rule.
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Q.3237 Exim Bank estimates its stable funding to be $100 million. Further, net cash outflows over the coming 30 days are estimated to hit $155 million. Exim bank has capital of $10 million and its total exposure stands at $150 million. The bank's high-quality liquid assets are valued at $140 million.
Determine the bank’s liquidity coverage ratio (LCR) as stipulated in Basel III.
A
0.9032
B
0.875
C
1.1
D
1.4