Question
3. A financial institution has the following assets (market values): $120 million in cash reserves, $120 million in Treasury bills and notes, $200 million in
3. A financial institution has the following assets (market values):
$120 million in cash reserves,
$120 million in Treasury bills and notes,
$200 million in mortgage loans,
$40 million in corporate bonds, and
$150 million in commercial loans.
If assets are liquidated on short notice, the institution expects to receive
99% of the fair market value of the treasury debt,
90% of the fair market value of the mortgages,
95% of the fair market value of the bonds, and
$75% of the fair market value of the commercial loans.
a. What is the financial institutions liquidity index?
b. How can the financial institution use this information is managing its liquidity risk?
please show all of the formulas used to derive these
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