(a) The balance sheet of FNBNA is shown as below Cost Rate First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount Rate of Amount (million $) Return (million $) $ 10 0 00 Core deposits $ 80 30 5 50 Borrowings 10 60 9 00 Equity 10 $ 100 Total $ 100 4 00 7 00 Cash Securities Loans Total Calculate the change of pretax net income if FNBNA expects $20 million net deposit drain and the bank will fund the drain by the following ways (consider each scenario separately) Additional borrowing with the borrowing cost the same as its existing borrowed funds (ii) Selling securities at 20 below the book value (6 marks) (b) Identify TWO measures adopted by financial institutions to reduce their liquidity risk (2 marks)

Question

(a) The balance sheet of FNBNA is shown as below  Cost Rate First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount Rate of Amount (million $) Return (million $) $ 10 0 00  Core deposits $ 80 30 5 50  Borrowings 10 60 9 00  Equity 10 $ 100 Total $ 100 4 00  7 00  Cash Securities Loans Total Calculate the change of pretax net income if FNBNA expects $20 million net deposit drain and the bank will fund the drain by the following ways (consider each scenario separately)  Additional borrowing with the borrowing cost the same as its existing borrowed funds  (ii) Selling securities at 20  below the book value  (6 marks) (b) Identify TWO measures adopted by financial institutions to reduce their liquidity risk  (2 marks)

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Question

(a) The balance sheet of FNBNA is shown as below: Cost Rate First National Bank of North America (FNBNA) Assets Liabilities and Equity Amount Rate

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