Which elements are typically included in liquidity stress testing for a client event?

• A. Cash flow timing, funding sources, market liquidity, and potential liquidity facilities
• B. Revenue growth projections only
• C. Compliance costs only
• D. Currency exchange rates only

Answer: (A)

Liquidity stress testing for a client event focuses on whether a firm can cover cash needs when conditions are stressed. The important elements are cash flow timing, which shows when cash is actually required and where gaps may occur; funding sources, which examine where funds can come from under stress and whether there are viable alternatives beyond normal channels; market liquidity, which assesses how easily assets can be sold or funded in stressed markets without depleting liquidity; and potential liquidity facilities, which consider access to backup arrangements such as lines of credit or other lending facilities that could be tapped during a crisis. Together, these aspects gauge the organization’s ability to meet obligations under adverse conditions.

Other items like revenue growth projections, compliance costs, or currency exchange rates focus on profitability, regulatory spend, or FX risk rather than the core ability to maintain liquidity during a client event, so they aren’t the central components of liquidity stress testing.