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

question 85

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:

Real Defense

A liability defense that applies universally to all parties.

Drawee

The person or entity upon whom a check or draft is drawn and is responsible for paying the amount specified.

Presentment

The formal presentation of a financial instrument, such as a check or draft, for payment or acceptance.

Transfer Warranties

Legal assurances provided by a seller about the quality and ownership of goods being sold, particularly that the goods are free from any security interest or other lien not disclosed at the time of sale.