Consider the Following Situation: an FI Holds Two Assets in Equal

question 68

Multiple Choice

Consider the following situation: an FI holds two assets in equal proportions, these being liquid securities with a fair market value of $200 and housing loans with a fair market value of $800.Further assume that in case of immediate liquidation, the FI would receive $185 for its liquid securities and $700 for its housing loans.What is the FI's liquidity index (round to two decimals) ?

• A)I = (185/200) + (700/800) = 1.80
• B)I = (185/200) * (700/800) = 0.81
• C)I = 0.5 * (185/200) + 0.5 * (700/800) = 0.90
• D)I = [0.5 * (185/200)] * [0.5 * (700/800)] = 0.20

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Definitions:

Demand Instrument

A financial document that requires the payment of money immediately or on demand.

Time Of Payment

The specific period or date by which payment for goods or services received must be made.

Voidable Instrument

A financial document or contract that is valid but may be annulled by one or more of the parties to the contract.

IOU Instrument

A document acknowledging a debt or an obligation to pay a specified sum of money to another party.