Question

Shawnee bank intentionally began the last monday of its two-week required reserves maintanence period with an accumulated reserv deficiency of $70 million. The bank's money desk manager assumed, on the basis of past check clearing activity for this period, that a $60 to $65 million reserve buildup would occur on monday, thereby offsetting most of the deficiency with only two days left until settlement Wednesday. To her surprise, only $10 million of the expected reserve credits aterialized on monday. Unfortunately, she was contrained from purchasing a sufficient amount of federal funds by a bank policy that put a cap on such purchases during any 14-day maintanence period, and she had already used most of this cap. Her remaining alternatives for overcoming the accumulated defecit by wednesday were:

a) Borrow from the Federal Bank Reserve

b) Borrow with repurchase agreements using the bank's unpledged securities as collateral

c) Issue new CDs

d) Sell off short-term securities

e) Sell off high-coupon investment securities

f) Cancel outstanding call loan to security brokers

Discuss the pros and cons, including comparitive costs, of using these various sources of funds.

What should she do?

Answer 1

solution:

In this circumstance alternative A - obtain from the government bank hold is best choice for shanee bank as contrast with other choice . By and large banks acquire from the central bank basically to meet save prerequisites when their money close by is low before the end of the business day . To keep up their hold according to national banks rules then a bank obtains cash from the administration's national bank which is know as rebate window . obtaining at the rebate window is helpful on the grounds that it is constantly accessible and there is no transaction or colossal printed material . It is the quickest choice for to borrowo cash for a bank.

Be that as it may, the primary downside of getting cash from national bank is the loan fee at which the national bank loans to banks, is higher as contrast with another business banks.