Scenario analysis refers to the part of a bank's liquidity policy that caters for:
A)a range of predictable events, to ensure that the FI can operate under these operating conditions
B)worst-case events only, to ensure how worst-case events affect the FI's operating conditions
C)the most likely scenario, to ensure that the FI's liquidity policy is still valid
D)a range of specific events, to ensure that the FI can operate under a wide spectrum of operating conditions

Question

Quizplus · Accepted Answer

Scenario analysis in a bank's liquidity policy is designed to ensure that the FI can operate under a wide spectrum of operating conditions, not just the most likely or worst-case scenarios. It involves analyzing a range of specific events to identify potential liquidity risks and develop strategies to mitigate them. This approach helps to prepare the bank for various market conditions and ensures the effectiveness of its liquidity policy.

Scenario Analysis Refers to the Part of a Bank's Liquidity