(a). The Success Bank has 2 kinds of assets: 40% in 1 month T-bill and 60% in...
Question:
(a). The Success Bank has 2 kinds of assets: 40% in 1 month T-bill and 60% in 1 month consumer loan. In a month, the T-bill will yield $101, but now it worths only $96. The consumer loan will yield $109 in a month, but now it is worth $68. Calculate the 1 month liquidity index.
(b). Refer to (a), if the market conditions change suddenly and the T-bill now worths $98, while the consumer loan worths $46. Calculate the new 1 month liquidity index.
(c). Based on the results from (a) and (b), interpret the liquidity risk faced by the FI before and after the market conditions change.
(d). Success Bank always faces high level of withdrawal and shortage of funds when the economy is in the growth phase of the business cycle. The CEO of Success Bank would like to improve its management in liquidity by implementing new policies in the future. What kind of liquidity management is better for handling this situation? Explain your selection with details.
(e). What are the fears that can lead to serious liquidity issues with bank runs?
(f). Suggest three major consideration for choosing the optimal sources of funds for a bank.
Operations Management Creating Value Along the Supply Chain
ISBN: 978-0470525906
7th Edition
Authors: Roberta S. Russell, Bernard W. Taylor