How to answer this Analytical interview question about Liquidity Risk for Senior-Level Risk Manager?

What strategies would you use to manage liquidity risk during a financial crisis?

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Risk Manager

Analytical

Asked at

Citibank

Difficulty :

Hard

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Explanation

This question evaluates your ability to manage liquidity risks in high-pressure scenarios. Recruiters assess your analytical skills, understanding of liquidity management, and ability to implement crisis strategies. Common pitfalls include focusing solely on short-term measures or not addressing contingency planning. A strong answer demonstrates a structured approach, including liquidity forecasting, diversification, and stress-testing. Preparation involves studying liquidity risk management strategies and crisis case studies.

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Answer Example

I would begin by conducting liquidity stress tests to identify potential shortfalls under various crisis scenarios. Next, I would diversify funding sources to reduce reliance on any single channel and establish contingency plans, such as maintaining a liquidity buffer. For example, I managed liquidity risks during a market downturn by implementing daily cash flow monitoring and securing additional credit lines, which ensured uninterrupted operations.

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