A DI has the following balance sheet (in millions). The DIs securities portfolio includes $16 million in


A DI has the following balance sheet (in millions).
A DI has the following balance sheet (in millions).The DI€™s

The DI€™s securities portfolio includes $16 million in T-bills and $10 million in GNMA securities. The DI has a $20 million line of credit to borrow in the repo market and $5 million in excess cash reserves (above reserve requirements) with the Fed. The DI currently has borrowed $22 million in Fed funds and $18 million from the Fed discount window to meet seasonal demands.
1. What is the DI€™s total available (sources of) liquidity?
2. What is the DI€™s current total uses of liquidity?
3. What is the net liquidity of the DI?
4. Calculate the financing gap.
5. What is the financing requirement?
6. The DI expects a net deposit drain of $20 million. Show the DI's balance sheet if the following conditions occur:
a. The DI purchases liabilities to offset this expected drain.
b. The stored liquidity management method is used to meet the expected drain (the DI does not want the cash balance to fall below $5 million, and securities can be sold at their fair value).
7. In the event of an unexpected and severe drain on deposits in the next 3 days, and 10 days, the DI will liquidate assets in the following manner:

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Line of Credit
A line of credit (LOC) is a preset borrowing limit that can be used at any time. The borrower can take money out as needed until the limit is reached, and as money is repaid, it can be borrowed again in the case of an open line of credit. A LOC is...
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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Financial Institutions Management A Risk Management Approach

ISBN: 978-0071051590

8th edition

Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders

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