a. A bank has the following data for its operation:

Internal transfer price of non-capital funds with the same maturity as the loan being financed is 13 %.

Loan is to be financed with 12 % equity.

Target before tax return on equity is 13.5 %.

The Bank holds liquid assets equal to 12.3 % of non-capital funds.

Return on liquid assets is about 10 %.

Compute the amount of non-capital funding to support the loan for each dollar, and the costs of fund for the non-capital funds, capital funds, liquid assets, and also the net cost of funds (14 Marks).

b. Compare purchased liquidity management and stored liquidity management by listing three advantages for purchased liquidity management and three advantages for stored liquidity management (12 Marks).