An FI Has $5 Million in Cash Reserves with the Fed

question 89

Multiple Choice

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 is the net liquidity of the bank?

• A)$7 million.
• B)$12 million.
• C)$17 million.
• D)$21 million.
• E)$22 million.

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Definitions:

Sales Discount

A reduction in the price of goods or services offered to customers, typically to prompt early payment or bulk purchases.

Contra Revenue Account

An account used to record reductions in gross revenue, such as discounts, returns, and allowances.

Operating Expense

Refers to the costs associated with the day-to-day functions of a business, excluding costs related to production.