A depository institution (DI) has the following balance sheet (USD millions): Assets Liabilities & Equity Cash 9 Equity 5 Loans 90 Deposits 75 Securities 26 Purchased funds 50 Other assets 10 Other liabilities 5 Total 135 Total 135 The DIs securities portfolio includes $16 million in Treasury-bills (T-bills) and $10 million in GNMA securities (Government National Mortgage Association). The DI has a $20 million line of credit to borrow in the repo market and $5 million in excess cash reserves (above reserve requirements) with the Fed. The DI currently has borrowed $22 million in Fed funds and $18 million from the Fed discount window to meet seasonal demands. 1. What is the DIs total sources of liquidity? 2. What is the DIs total uses of liquidity? 3. What is the net liquidity of the DI? 4. What does the net liquidity figure imply? 5. Calculate the financing gap. = 99 75 = 15 billion 6. What is the financing requirement? = 20+35 = 55 billion 7. The DI expects a net deposit drain of $20 million. Show the DI's balance sheet if the following conditions occur: a) The DI purchases liabilities to offset this expected drain. b) The stored liquidity management method is used to meet the expected drain (the DI does not want the cash balance to fall below $5 million, and securities can be sold at their fair value). 8. In the event of an unexpected and severe drain on deposits in the next 3 and 10 days, the DI will liquidate assets in the following manner: Liquidation Values ($ millions) Asset Fair value t = 3 t = 10 Cash 9 9 9 T-bills 16 14 15.5 GNMAs 10 8 9 Loans 90 60 70 Calculate the 3-day and 10-day liquidity index for the DI.