Suppose Abigail Savings Bank's liquidity manager estimates that the bank will experience a $375 million liquidity deficit next month with a probability of 15 percent, a $200 million liquidity deficit with a probability of 35 percent, a $100 million liquidity surplus with a probability of 35 percent, and a $250 million liquidity surplus bearing a probability of 15 percent. What is this savings bank’s expected liquidity requirement? What should management do?
Liquidity Deficits or Associated
Surpluses....... Probabilities
-$375 million...... 15 percent
-$200 million..... 35 percent
+$100 million..... 35 percent
+$250 million...... 15 percent
100 percent