Question
Consider the simple FI balance sheet below (in millions of dollars): Assets Liabilities/Equity Cash assets $65 Deposit $325 Nonliquid assets $355 Equity $95 $420 $420
Consider the simple FI balance sheet below (in millions of dollars):
Assets Liabilities/Equity
Cash assets $65 Deposit $325
Nonliquid assets $355 Equity $95
$420 $420
Suppose that depositors unexpectedly withdraw $100 million in deposits and the FI receives no new deposits to replace them. Assume that the FI cannot borrow any more funds in the short-term money markets, and because it cannot wait to get better prices for its assets in the future (as it needs the cash now to meet immediate depositor withdrawals), the FI has to sell any nonliquid assets at 65 cents on the dollar. Show the FIs balance sheet after adjustments are made for the $100 million of deposit withdrawals. Please keep two decimals.
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