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 Business Analytics (MindTap Course List)
2nd Edition
ISBN:9781305627734
Author:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Chapter11: Linear Optimization Models
Section: Chapter Questions
Problem 11P: The employee credit union at State University is planning the allocation of funds for the coming...
Related questions
Question
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Recommended textbooks for you
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
College Accounting (Book Only): A Career Approach
Accounting
ISBN:
9781337280570
Author:
Scott, Cathy J.
Publisher:
South-Western College Pub
Essentials of Business Analytics (MindTap Course …
Statistics
ISBN:
9781305627734
Author:
Jeffrey D. Camm, James J. Cochran, Michael J. Fry, Jeffrey W. Ohlmann, David R. Anderson
Publisher:
Cengage Learning
College Accounting (Book Only): A Career Approach
Accounting
ISBN:
9781337280570
Author:
Scott, Cathy J.
Publisher:
South-Western College Pub