Question

Elton Harbor Bank has a cumulative legal reserve deficit of $44 million as of the close of business this Tuesday. The bank must cover this deficit by the close of business tomorrow (Wednesday).
Charles Tilby, the bank's money desk supervisor, examines the current distribution of money market and long-term interest rates and discovers the following:
Money Market Instrument Current Market Yield
Federal funds..................... 1.98%
Borrowing from the central bank’s discount window ..... 2.25
Commercial paper (one-month maturity) ........... 2.33
Bankers' acceptances (three-month maturity) ........ 2.30
Certificates of deposit (one-month maturity) ........ 2.52
Eurodollar deposits (three-month maturity) ......... 3.00
U.S. Treasury bills (three-month maturity) .......... 1.85
U.S. Treasury notes and bonds (1-year maturity) ....... 2.57
U.S. Treasury notes and bonds (5-year maturity) ........ 3.65
U.S. Treasury notes and bonds (10-year maturity) ..... 4.19

One week ago, the bank borrowed $20 million from the Federal Reserve’s discount window, which it paid back yesterday. The bank had a $5 million reserve deficit during the previous reserve maintenance period. From the bank’s standpoint, which sources of reserves appear to be the most promising? Which source would you recommend to cover the bank’s reserve deficit? Why?



$1.99
Sales0
Views72
Comments0
  • CreatedOctober 31, 2014
  • Files Included
Post your question
5000