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

question 99

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. Assume that the T-Bills can only be sold at a 10 percent discount, what is the net liquidity of the bank given this information?

• A)$6.5 million.
• B)$11.5 million.
• C)$16.5 million.
• D)$20.5 million.
• E)$21.5 million.

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Definitions:

Innovation

The process of developing new products, services, or methods, often leading to increased efficiency or value.

Economic Profit

The difference between a firm's total revenue and total costs, including both explicit and implicit costs, measuring the firm's performance beyond the basic business costs.

Investment

The action of designating capital with the intention of securing an income or a financial return.

Interest Rate

The amount charged, expressed as a percentage of principal, by a lender to a borrower for the use of assets.