Queen Savings is attempting to determine its liquidity requirements for the month of September. September is usually a month of heavy loan demand due to the beginning of the school term and the buildup of business inventories of goods and services for the fall season and winter. This bank has analyzed its deposit accounts thoroughly and classified them as shown in the table below. Hot money funds Vulnerable funds Stable (core) funds Totals Source ($'s in millions) Checking Deposits $10 $65 $85 $160 Savings Deposits $5 $152 $450 $607 Timing Deposits $1,200 $740 $172 $2,112 Totals $1,215 $957 $707 $2,879 Management has elected to hold a 85 percent reserve in liquid assets or borrowing capacity for each dollar of hot money deposits, a 25 percent reserve behind vulnerable deposits, and a 5 percent reserve for its holdings of core funds. Assume time and savings deposit accounts carry a zero percent legal reserve requirement and all checkable deposits carry a 3 percent legal reserve requirement. Queen currently has total loans outstanding of $2,500, which two weeks ago were as high as $2,550. Its loans indicate annual growth rate over the past three years has been about 6 percent (Hint - the 6% growth is stated in an annual rate and not a monthly rate). Question 2: Excluding the legal reserve requirements, for the month of September, what is Queen's High estimate for its liquidity?
Queen Savings is attempting to determine its liquidity requirements for the month of September. September is usually a month of heavy loan demand due to the beginning of the school term and the buildup of business inventories of goods and services for the fall season and winter. This bank has analyzed its deposit accounts thoroughly and classified them as shown in the table below. Hot money funds Vulnerable funds Stable (core) funds Totals Source ($'s in millions) Checking Deposits $10 $65 $85 $160 Savings Deposits $5 $152 $450 $607 Timing Deposits $1,200 $740 $172 $2,112 Totals $1,215 $957 $707 $2,879 Management has elected to hold a 85 percent reserve in liquid assets or borrowing capacity for each dollar of hot money deposits, a 25 percent reserve behind vulnerable deposits, and a 5 percent reserve for its holdings of core funds. Assume time and savings deposit accounts carry a zero percent legal reserve requirement and all checkable deposits carry a 3 percent legal reserve requirement. Queen currently has total loans outstanding of $2,500, which two weeks ago were as high as $2,550. Its loans indicate annual growth rate over the past three years has been about 6 percent (Hint - the 6% growth is stated in an annual rate and not a monthly rate). Question 2: Excluding the legal reserve requirements, for the month of September, what is Queen's High estimate for its liquidity?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Queen Savings is attempting to determine its liquidity requirements for the month of September. September is usually a month of heavy loan
demand due to the beginning of the school term and the buildup of business inventories of goods and services for the fall season and winter.
This bank has analyzed its deposit accounts thoroughly and classified them as shown in the table below.
Hot money funds
Vulnerable funds
Stable (core) funds
Totals
Source ($'s in millions)
Checking
Deposits
$10
$65
$85
$160
Savings Deposits
$5
$152
$450
$607
Timing Deposits
$1,200
$740
$172
$2,112
Totals
$1,215
$957
$707
$2,879
Management has elected to hold a 85 percent reserve in liquid assets or borrowing capacity for each dollar of hot money deposits, a 25
percent reserve behind vulnerable deposits, and a 5 percent reserve for its holdings of core funds. Assume time and savings deposit accounts
carry a zero percent legal reserve requirement and all checkable deposits carry a 3 percent legal reserve requirement. Queen currently has total
loans outstanding of $2,500, which two weeks ago were as high as $2,550. Its loans indicate annual growth rate over the past three years has
been about 6 percent (Hint - the 6% growth is stated in an annual rate and not a monthly rate).
Question 2: Excluding the legal reserve requirements, for the month of September, what is Queen's High estimate for its liquidity?
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