Explanation:
The correct answer is A.
In the governance and control framework of liquidity stress testing, the Treasury typically serves as the first line of defense. Its responsibilities include managing day-to-day liquidity, executing liquidity operations, and recommending stress testing scenarios and assumptions to the Asset-Liability Committee (ALCO) or appropriate risk committees for review and approval.
Choice B is incorrect because recruiting members for ALCO is a high-level governance and corporate function, typically handled by executive management or the Board of Directors, rather than the Treasury.
Choice C is incorrect because designing liquidity risk policy limits based on stress test results and escalating exceptions are generally responsibilities assigned to the independent Risk Management function (the second line of defense) to ensure appropriate and unbiased oversight.
Choice D is incorrect because undertaking periodic independent reviews of the liquidity stress testing framework, procedures, and controls to ensure compliance with policy and regulatory requirements is the explicit responsibility of Internal Audit (the third line of defense).
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Q.4141 In the governance and control of the liquidity stress testing process, the treasury committee is considered to be instrumental in the whole process. Which among the following choices most accurately states one of the responsibilities undertaken by the treasury?
A
Recommends stress testing scenarios
B
Recruits members for the asset-liability committee (ALCO)
C
Designs liquidity risk policy limits relative to stress test results and escalating exceptions
D
Undertakes the liquidity stress testing frame-work periodic review, procedures, and controls to keep compliance with policy, regulatory, and control requirements.
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