Question

An F/I has $5 million in cash reserves with the Fed in excess of its reserve requirements, $5 million in T-bills, and a credit line of $10 million to borrow in the Repo market. It currently has lent $2 million in the Fed Funds market and borrowed $1 million from the Federal discount window to meet its seasonal needs.

A. What are the bank's total available sources of liquidity (in $-millions)?

B. What are the bank's current total uses of liquidity (in $-millions)?

Answer 1

Answer :

A.) Calcualtion of Banks total available sources of Liquidity

Banks Total sources of Liquidity = Cash Reserves + T-Bills + Credit Line + Fed Fund Market lending

= $ 5 million + $ 5 million +$ 10 million + $ 2 million

= $ 22 million

Therefore total available sources of Liquity is $ 22 million .

Note : Sources of Liquidity are those sources and investments that can be easily converted into cash within short span.

B.) Bank's Current total uses of Liquidity is only Federal dicount window borrowing to meet its seasonal needs i.e $ 1 million.