Updated for 2026 Syllabus Detailed Explanations High-Yield Core Concepts

Bank Promotion Exam Guide

Banking Awareness | Banking Knowledge | for all Bank Exams

Module: | Stress Scenarios & Monitoring Tools

Q12: Regarding "Derivative Cash Outflows," how must a bank calculate the increased liquidity need related to market valuation changes?

A
By taking 20% of the total derivative notional amount.
B
By identifying the largest absolute net 30-day collateral flow realized during the preceding 24 months.
C
By calculating the average daily margin call over the last 30 days.
D
By using a fixed 5% factor on all derivative liabilities.
✅ Correct Answer: B
Understanding this aspect of Liquidity Coverage Ratio (LCR) helps aspirants calculate complex derivative exposures.
The "Look-back approach" is mandatory here.
Banks must identify the largest absolute net 30-day collateral flow from the preceding 24 months to estimate outflows from valuation changes, ensuring alignment with Basel III Liquidity Standards.