Need help with question 12.

Page 375 of 887 a. The average cost of deposits is 6 percent and the average yield on loans is 8 percent. The DI decides to reduce its loan portfolio to offset this expected decline in deposits. What will be the effect on net interest income and the size of the DI after the implementation of this strategy? b. If the interest cost of issuing new short-term debt is expected to be 7.5 percent, what would be the effect on net interest income of offsetting the expected deposit drain with an increase in interest-bearing liabilities? c. What will be the sie of the DI after the drain if the DI uses this strategy? d. What dynamic aspects of DI management would support a strategy of replacing the deposit drain with interest-bearing liabilities? 11. Define each of the following four measures of liquidity risk. Explain how each measure would be implemented and utilized by a DI a. Sources and uses of liquidity. b. Peer group ratio comparisons. c. Liquidity index. d. Financing gap and financing requirement. 12. A DI has $10 million in T-bills, a $5 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 S6 million in fed funds and $2 million from the Fed's discount window to meet seasonal demands. a. What is the DI's total available (sources of) liquidity? b. What is the DI's current total uses of liquidity? c. What is the net liquidity of the DI? d. What conclusions can you derive from the result? 13. A DI has the following assets in its portfolio: $10 million in cash reserves with the Fed, $25 million in T-bills, and $65 million in mortgage loans. If the DI has to liquidate the assets today, it will receive only $98 per S100 of face value of the T-bills and $90 per S100 of face value of the mortgage loans. Liquidation at the end of one month (closer to maturity) will produce S100 per $100 of face value of the T-bills and $97 per $100 of face value of the mortgage. Calculate the one-month liquidity index for this DI using the preceding information. 14. A DI has the following assets in its portfolio: $20 million in cash reserves with the Fed. $20 million in T-bills, and $50 million in mortgage loans. If the assets age 375 of 887