Question
Use the hypothetical case given to answer the questions. Assume Express Investment Bank Limited operates in Jamaica. Due to the inflationary period in the country,
Use the hypothetical case given to answer the questions.
Assume Express Investment Bank Limited operates in Jamaica. Due to the inflationary period in the country, there is currently a high demand on bank deposit withdrawals. At the end of the bank day March 20, 2023, Express Investment Bank had excess deposit withdrawals of $20M. The reserve requirement for the investment bank is 5%. A sample of the assets and liabilities of the investment bank is given below.
Assets | Liabilities | ||
Reserves | $20M | Deposits | $120M |
Loans | $100M |
|
|
Securities | $20M | Bank Capital | $10M |
a. Is the reserve held by Express Investment Bank adequate? Explain. (2 marks)
b. If a deposit outflow of $12M occurs, what will the balance sheet look like? (3 marks)
c. Lets assume a new scenario. The investment bank holds no excess reserves. Express Investment Bank balance sheet is given below. What happens when there is a $6M deposit outflow? Show the changes in the balance sheet. (3 marks)
Assets | Liabilities | ||
Reserves | $6M | Deposits | $120M |
Loans | $124M |
|
|
Securities | $10M | Bank Capital | $20M |
d. Discuss the options available to the investment bank to deal with any shortfalls. Ensure you include explanations, and show the balance sheet (as applicable). Which is the least expensive option, why? What is the most expensive option, why? ( 12 marks)
(20 marks)
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