Question

A DI has $16 million in T-bills, a $9 million line of credit to borrow in the repo market, and $9 million in excess cash reserves with the Fed. The Dl currently has borrowed $13 million in fed funds and $9 million from the Fed discount window to meet seasonal demands a. What is the Di's total available (sources of) liquidity? b. What is the Di's current total uses of liquidity? c. What is the net liquidity of the DI? d. What conclusions can you derive from the result? (For all requirements, enter your answers in millions.) million million mnces a. b. c d. Di's total available liquidity Di's current total uses of liquidity Net liquidity of the DI DI can withstand unexpected withdrawals of $12 million without reducing its liquidity. milion

Answer 1

Answer:

Solution:

Part A) Total available liquidity of the DI will be consists of sum of all the resources available

Total liquidity = $16 million ( T-Bill) + $9 million ( Line of credit ) + $9 million ( Excess cash ) = $34 million

Part B )

Current usage is sum of all the borrowings

Current usage = $ 13 million ( From Fed Fund ) + $9 million ( Discount window ) = $22 million

Part C ) Net liquidity will be the difference of available liquidity - current liquidity

Net liquidity = $34 million - $ 22 million = $12 million

Part D) In conclusion, the net liquidity is $12 million, it suggests that the depository institutions can Also withstand the withdrawals which are unexpected of $12 million in order to decrease the less liquid assets which have fire-sale rate.