FRM 2026 Part I Foundations of Risk Management Liquidity Risk Free Quiz 2

Practice FRM 2026 Part I Foundations of Risk Management MCQs from Liquidity Risk. Get instant results with Explanation.

General10 MCQs

1. What is a run on a bank?

A. A bank run is a large-scale withdrawal of depositsB. A bank run is the same as a market crashC. A bank run is not a liquidity riskD. A bank run only affects small banks

2. What is the lender of last resort?

A. The lender of last resort is a private institutionB. The lender of last resort is not related to liquidity riskC. The lender of last resort is only for large banksD. The lender of last resort is a central bank that provides emergency liquidity

3. What is maturity mismatch in liquidity risk?

A. Maturity mismatch is not a source of liquidity riskB. Maturity mismatch (funding long-term assets with short-term liabilities) creates liquidity riskC. Maturity mismatch is only for mortgagesD. Maturity mismatch is always beneficial

4. What is liquidity stress testing?

A. Liquidity stress testing is not used in practiceB. Liquidity stress testing is the same as credit stress testingC. Liquidity stress testing assesses the impact of adverse scenarios on liquidityD. Liquidity stress testing is only for large banks

5. Who is responsible for overseeing liquidity risk management?

A. The board oversees liquidity risk managementB. Liquidity risk management is the sole responsibility of the treasurerC. The board has no role in liquidity risk managementD. Liquidity risk management is only for the ALCO

General10 MCQs

6. How is liquidity risk related to other risks?

A. Liquidity risk is independent of other risksB. Liquidity risk is only related to credit riskC. Liquidity risk is only related to market riskD. Liquidity risk is closely related to credit, market, and reputational risks

7. Why is diversifying funding sources important for liquidity risk management?

A. Diversifying funding sources is not importantB. Diversifying funding sources reduces liquidity riskC. Wholesale funding is always reliableD. Retail deposits are always unstable

8. What are High-Quality Liquid Assets (HQLA)?

A. HQLA includes all assetsB. HQLA includes only cashC. HQLA includes Level 1 and Level 2 assets that can be easily converted to cashD. HQLA is not defined by regulators

9. What is the Internal Liquidity Stress Test (ILST)?

A. ILST assesses liquidity under stress scenariosB. ILST is the same as the LCRC. ILST is not required by regulatorsD. ILST is only for large banks

10. What is a liquidity risk policy?

A. Liquidity risk policy is optionalB. Liquidity risk policy is the same as the contingency funding planC. Liquidity risk policy is only for the treasury departmentD. Liquidity risk policy sets out the approach to managing liquidity risk and should be approved by the board

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