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22 June, 08:20

An FI 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. What are the bank's total available sources of liquidity

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  1. 22 June, 08:25
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    The bank's total available sources of liquidity is $22 million.

    Explanation:

    Sources of liquidity are sources or investments that can be easily converted to cash within a short time.

    Example of these sources of liquidity in this question are cash reserves with the Fed in excess of reserve requirements, T-Bills, a credit line to borrow in the repo market, and lending in the Fed Funds market.

    As result, the bank's total available sources of liquidity can be calculated as follows:

    Total available sources of liquidity = Cash reserves + T-bills + Credit line + Fed Funds lending

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

    Total available sources of liquidity = $22 million

    Therefore, the bank's total available sources of liquidity is $22 million.
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