Question
In: Finance
An FI has the following Balance Sheet (in millions of dollars): Assets&nbs
An FI has the following Balance Sheet (in millions of dollars):
Assets Liabilities and Equity
Cash $40 Deposits $135
Loans $100 Equity $15
Securities $10
The FI is expecting a $50 million net deposit drain. Show the FI's new balance sheet if:
- The Stored Liquidity method is used to meet the liquidity shortfall
- The FI purchases liabilities to offset this expected drain.
Solutions
Expert Solution
a. The Stored Liquidity method is used to meet the liquidity shortfall.
The $ 50 million drain reflects on the deposits and cash and securities are used to meet this. (Cash $ 40 mln and securities $ 10 mln)
FI's new balance sheet:
Assets Liabilities and Equity
Loans $100 Equity $15
Deposits $ 85
Total Assets $100 Total liabilities and equity $ 100
b. The FI purchases liabilities to offset this expected drain.
The $ 50 million drain reflects on the deposits and liabilities are purchased.
Assets Liabilities and Equity
Cash $40 Deposits $ 85
Loans $100 Equity $15
Securities $10 Purchased liabilities $ 50
Total Assets $150 Total liabilities and equity $ 150
jeff jeffy answered 1 year agoRelated Solutions
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