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StarBank has the following balance sheet ( in millions ) : Assets : Liabilities and Equity: Cash required reserves $ 2 Deposits $ 8 Loans
StarBank has the following balance sheet in millions:
Assets : Liabilities and Equity:
Cash required reserves $ Deposits $
Loans $ Longterm debt $
Equity $
Total assets $ Total liabilities and equity $
The average interest earned on the loans is percent and the average cost of deposits is percent. Rising interest rates are expected to induce a net deposit drain of percent. Borrowing more debt will cost the bank percent in the short term.
a What will be the cost of using a strategy of purchased liquidity management to manage the deposit drain?
bWhat will be the size of the bank if a purchased liquidity management strategy is adopted?
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