Explanation:
Assumptions on the expected returns are not considered as one of the key stress testing assumptions in liquidity stress testing. Liquidity stress testing is primarily concerned with a firm's ability to meet its obligations as they come due without incurring unacceptable losses. Expected returns, while important in other aspects of financial management, do not directly impact a firm's liquidity position. Therefore, they are not typically included in the assumptions used in liquidity stress testing.
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Q.4140 In liquidity stress testing, among the considered outputs are stress testing assumptions, liquidity position metrics, prospective liquidity position metrics, and capital and performance metrics. Which of the following choices is not among the four key stress testing assumptions?
A
The assumption about the overall stress level represented by the scenario
B
The assumption about the indication of the nature of the scenario, such as systemic, idiosyncratic, or both systemic and idiosyncratic
C
Assumptions on the expected returns
D
The assumption on the discussion of the impact of the scenario on cash flow