Use the Following Balance Sheet (Values in Thousands of Dollars)

question 35

Multiple Choice

Use the following balance sheet (values in thousands of dollars) to answer the question. If the bank experiences a $50 000 sudden liquidity drain caused by withdrawal of their demand deposits, what will be the impact on the balance sheet if purchased liquidity management techniques are used?

• A) A reduction in cash of $21 000 and a decrease in demand deposits of $29 000.
• B) A reduction in securities and/or current loans totalling $50 000.
• C) A reduction in demand deposits of $50 000 and an increase in interbank borrowings of $50 000.
• D) A decrease in equity of $50 000.

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Definitions:

Tolerance

The allowable deviation in a manufacturing or production process, defining the range within which output is considered acceptable.

Nominal Specification

The stated or targeted value for a parameter in a design or process, serving as a benchmark for quality control.

Statistical Process Control

A methodology applied to monitor and control a process to ensure that it operates at its fullest potential, using statistical techniques.