Suppose you were the manager of a bank with the following balance sheet (ignoring bank capital):

Assets (in millions)

Liabilities (in millions)

Reserves $30	Checkable Deposits $200
Securities $150	Time Deposits $600
Loans $820	Borrowings $100

You are required to hold 10 percent of checkable deposits as reserves. If you were faced with unexpected withdrawals of $30 million from time deposits, would you rather a. Draw down $10 million excess reserves and borrow $20 million from the Fed? b. Draw down $10 million excess reserves and sell securities of $20 million?

	A) Option a would be preferred to Option b because it shrinks the size of the balance sheet by less. Banks would prefer not to reduce the size of their balance sheets as that lowers their profit.
	B) Option b would be preferred to Option a because it shrinks the size of the balance sheet by less. Banks would prefer not to reduce the size of their balance sheets as that lowers their profit.
	C) Option b would be preferred to Option a because borrowing from the Fed is never a good idea under any circumstance.
	D) Both options are equally desirable as they are equally costly to the bank.