Page 375of 887 Chapter 12 Liquidity Risk 375 9. AllStarBank has the following balance sheet (in millions): Assets Liabilities and Equity Cash Loans Securities Total assets $170 s 30 90 50 Deposits Borrowed funds Equity Total liabilities and equity $110 40 20 $170 AllStarBank's largest customer decides to exercise a $15 million loan commit- ment. How will the new balance sheet appear if AllStar uses the following liquidity risk strategies a. Stored liquidity management b. Purchased liquidity management 10. A DI has assets of $10 million consisting of $1 million in cash and $9 million in loans. The DI has core deposits of S6 million, subordinated debt of $2 million, and equity of $2 million. Increases in interest rates are expected to cause a net drain of $2 million in core deposits over the year 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 75 percent, what would be the effect on net interest income of offsetting the expected deposit drain with an increase in interest-bearing liabilities? What will be the size of the DI after the drain if the DI uses this strategy? d What dynamic aspects of DI management would support a strategy of 11. Define each of the following four messures of liquidity risk Explain how each replacing the deposit drain with interest-bearing liabilities