Question 3 a. You have recently been employed to a small community based financial institution, Ironshore Community Savings & Loans, and you observe that there is no structure regarding how they borrow funds to meet unexpected large withdrawals or fund loan commitments, nor do they have a sense of the deposit patterns of their customers. Having just completed your MSc in Corporate Finance, you decide to make a presentation to your board indicating why it is necessary to develop and implement a plan to address this issue and outline the four components that it would entail. Prepare your notes to present. (No more than ONE PAGE) (5 marks) b. Ironshore Community Savings & Loans Balance sheet is shown below (in millions): Assets Cash Loans Securities Liabilities 90 Demand Deposits 950 Borrowed Funds 260 Equity 1300 750 400 150 1300 Show the new composition of the Ironshore Community Savings & Loans balance sheet if the following conditions occur. 4/5 3 i) You use a stored liquidity risk management strategy to accommodate a large customer exercising a $30 million loan commitment (5 marks) ii) You use a purchased liquidity risk management strategy to offset a net deposit drain of $50 million (5 marks) c. In the event of an unexpected and severe drain on deposits in the next 3 days and 9 days Ironshore Community Savings & Loans will liquidate assets in manner depicted in the table below (1=3 days means in the next 3 days and t=9 days means in the next 9 days) Calculate the 3 day and 9 day liquidity Index. (5 Marks) Asset Cash Treasury Bills Treasury Bonds Loans Fair Value today 90 160 100 950 t-3 days 90 140 80 650 t9 days 90 155 90 750 Question 3 a. You have recently been employed to a small community based financial institution, Ironshore Community Savings & Loans, and you observe that there is no structure regarding how they borrow funds to meet unexpected large withdrawals or fund loan commitments, nor do they have a sense of the deposit patterns of their customers. Having just completed your MSc in Corporate Finance, you decide to make a presentation to your board indicating why it is necessary to develop and implement a plan to address this issue and outline the four components that it would entail. Prepare your notes to present. (No more than ONE PAGE) (5 marks) b. Ironshore Community Savings & Loans Balance sheet is shown below (in millions): Assets Cash Loans Securities Liabilities 90 Demand Deposits 950 Borrowed Funds 260 Equity 1300 750 400 150 1300 Show the new composition of the Ironshore Community Savings & Loans balance sheet if the following conditions occur. 4/5 3 i) You use a stored liquidity risk management strategy to accommodate a large customer exercising a $30 million loan commitment (5 marks) ii) You use a purchased liquidity risk management strategy to offset a net deposit drain of $50 million (5 marks) c. In the event of an unexpected and severe drain on deposits in the next 3 days and 9 days Ironshore Community Savings & Loans will liquidate assets in manner depicted in the table below (1=3 days means in the next 3 days and t=9 days means in the next 9 days) Calculate the 3 day and 9 day liquidity Index. (5 Marks) Asset Cash Treasury Bills Treasury Bonds Loans Fair Value today 90 160 100 950 t-3 days 90 140 80 650 t9 days 90 155 90 750