A DI has the following balance sheet (in millions).
Assets: Cash=9$ ; Loans=95 ; Securities= 26; total assets=130
Liabilities and equity: deposits= 75; purchased funds= 40; equity=15 ; total liabilites and equity= 130
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).