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

question 9

Multiple Choice

Use the following balance sheet (values in thousands of dollars) to answer the question. Assets
Liabilities and equity
Cash required reserves
21
Demand deposits
550
Short-term securities
369
Interbank borrowed funds
151
Loans
400
Equity
89
Total
790
Total
790
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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