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1. A bank offers one-year loans with a stated interest rate of 10 percent, requires a compensating balance of 10 percent, and collects no fees.
1. A bank offers one-year loans with a stated interest rate of 10 percent, requires a compensating balance of 10 percent, and collects no fees. What is the true cost of the loan to the borrower?
2. A bank has $18 million in T-bills, a $5 million line of credit to borrow in the repo market, $2 million in cash reserves with the Fed in excess of its required reserves. It has also borrowed $5 million in federal funds and $1 million from the Federal Reserves discount window to meet seasonal demands. Calculate the net liquidity position of the bank.
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