What is a key factor in managing liquidity risk in Faster Payments?

Managing liquidity risk in Faster Payments involves ensuring that there are adequate funds available to quickly settle transactions. Prefunding requirements are vital in this context, as they dictate how much money payment participants must hold in accounts before transactions are initiated. This is essential for guaranteeing that funds can be transferred immediately, thereby minimizing the risk of not having enough liquidity to cover outgoing payments.

When institutions are required to pre-fund accounts, they must accurately estimate their liquidity needs based on transaction volumes and timing. This helps in avoiding potential delays or failures in payment processing, ensuring that customers receive their funds promptly.

Other options, while relevant in different contexts, do not directly address the core of liquidity risk management in the framework of Faster Payments. For instance, transaction volume may inform liquidity needs but doesn't inherently manage risk. Pricing strategies impact the cost of transactions but not the immediate availability of funds. Interest rates influence financial decisions and overall economic conditions but do not specifically pertain to the processes involved in managing immediate liquidity needs within Faster Payments systems.