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Q.4211 There is an $80 million limit on a line of credit and $24 million already drawn. Jack is expected to draw the remaining with a 45% probability at the cost of term funding assets in the liquidity cushion at 24 bps. Calculate the rate charged for contingent liquidity risk. | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

Formula.
Rate charged = $\frac{\text{Limit-Drawn Amount}}{\text{Limit}} \times \text{Likelihood of Drawdown} \times \text{Cost of Funding Liquidity Cushion}$

Hence,
$\frac{(\`$ 80\text{m} - \ $24`\text{m})}{\`$ 80`\text{m}} \times 0.45 \times 0.0024 = 0.000756 \approx 7.56\text{bps}$

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Q.4211 There is an `$80` million limit on a line of credit and `$24` million already drawn. Jack is expected to draw the remaining with a 45% probability at the cost of term funding assets in the liquidity cushion at 24 bps. Calculate the rate charged for contingent liquidity risk.