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A DI has $18 million in T-bills, a $12 million line of credit to borrow in...

A DI has $18 million in T-bills, a $12 million line of credit to borrow in the repo market, and $12 million in excess cash reserves with the Fed. The DI currently has borrowed $14 million in fed funds and $10 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.)

Solutions

Expert Solution

a.
Total available liquidity Value of T-bills + Value of line of credit + Cash reserve with Fed
Total available liquidity $18 million + $12 million + $12 million
Total available liquidity $42 million
b.
Current total uses of liquidity Amount borrowed in fed funds + Fed discount window
Current total uses of liquidity $14 million + $10 million
Current total uses of liquidity $24 million
c.
Net liquidity of DI Total available liquidity - Current uses of liquidity
Net liquidity of DI 42 million - 24 million
Net liquidity of DI $18 million
d.
We can conculate that DI has net liquidity of $18 million which mean unexpected withdrawal up to $18 million can be afforded by DI without reducing its liquid assets at fire sale price.
Fire sale price mean at lessor price in order to receive cash immediately for unexpected cash withdrawal.

jeff jeffy answered 1 year ago
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