Question

You have just forecasted the AUD’ total deposits and total loans for the next six months. Your resulting estimates (in millions) are shown below.

Month	Estimated Loans	Estimated Deposits
1	30	40
2	40	40
3	60	65
4	50	80
5	20	40
6	70	50

a. Use the sources and uses of funds approach to indicate which months are likely to result in liquidity deficits if these forecasts turn out to be true.

b. On average, how much extra liquidity do you need each month in order to address fully liquidity deficits?

c. Now, assume the actual loans are 10% less than your estimations and the actual deposits 20% more than what you have estimated. Any change in months that are likely to result in liquidity deficits?

Answer 1

a. Liquidity Deficit is calculated when Estimated Deposits are less than Estimated Loans

Thus, if this scenario came out to be true then only month 6 will result in Liquidity Deficit.

b. In order to address fully liquidity deficit on an average we would require 8 rs because total estimated loans equal to rs 270 and total estimated deposited equals to 315 so the difference is 45 so we can take approx 48 as a difference and then divide by 6 as we have 6 months, so monthly comes to 8.

c.

Month	Estimated Loans	Estimated Deposits	Acctual loans 10% less	Acctual Deposit 20% more	Liquidity Deposit
1	30	40	27	48
2	40	40	36	48
3	60	65	54	78
4	50	80	45	96
5	20	40	18	48
6	70	50	63	60

Thus, there is no change in liquidity deficits when we change loans and deposits percentage, only in month 6 there is liquidity deficit.