A DI has $25 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 DI currently has borrowed $10 million in fed
funds and $6 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. Yes or No- DI can withstand unexpected
withdrawals of $27 million without reducing its liability.
(For all requirements, enter your answers in
millions.)
Solution:
Part A) Total available liquidity of the DI will be consists of sum of all the resources available
Total liquidity = $25 million ( T-Bill) + $9 million ( Line of credit ) + $9 million ( Excess cash ) = $43 million
Part B )
Current usage is sum of all the borrowings
Current usage = $ 10 million ( From Fed Fund ) + $6 million ( Discount window ) = $16 million
Part C ) Net liquidity will be the difference of available liquidity - current liquidity
Net liquidity = $43 million - $ 16 million = $27 million
Part D) Yes the DI can be able to withstand the unexpected withdrawal up to $27 million as they have net liquidity of $27 million .
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