Financial Accounting > Research Paper > LIQUIDITY AND RESERVES MANAGEMENT: STRATEGIES AND POLICIES (All)

LIQUIDITY AND RESERVES MANAGEMENT: STRATEGIES AND POLICIES

Document Content and Description Below

LIQUIDITY AND RESERVES MANAGEMENT: STRATEGIES AND POLICIES Liquidity This is the Availability of Cash in the Amount and at the Time Needed at a Reasonable Cost. The size and volatility of cash requ... irements affect the liquidity position of the bank. Examples of transaction that affect the bank’s cash balance and liquidity position are; Deposits and withdrawals; loan disbursements and loan payments. Supplies of Liquid Funds • Incoming Customer Deposits • Revenues from the Sale of Nondeposit Services • Customer Loan Repayments • Sales of Bank Assets • Borrowings from the Money Market Demands for Liquidity • Customer Deposit Withdrawals • Credit Requests from Quality Loan Customers • Repayment of Nondeposit Borrowings • Operating Expenses and Taxes • Payment of Stockholder Dividends IllustrationA Financial Firm’s Net Liquidity Position L = Supplies of Liquid Funds - Demands for Liquidity Illustration Suppose that a bank faces the following cash inflows and outflows during the coming week: (a) deposit withdrawals are expected to total $33 million, (b) customer loan repayments are expected to amount to $108 million, (c) operating expenses demanding cash payment will probably approach $51 million, (d) acceptable new loan requests should reach $294 million, (e) sales of bank assets Concept Check are projected to be $18 million, (f) new deposits should total $670 million, (g) borrowings from the money market are expected to be about $43 million, (h) nondeposit service fees should amount to $27 million, (i) previous bank borrowings totaling $23 million are scheduled to be repaid, and (j) a dividend payment to bank stockholders of $140 million is scheduled. What is this bank’s projected net liquidity position for the coming week? (In millions of dollars) Cash Inflows Cash Outflows Customer Loan Repayments $108 Deposit Withdrawals $33 Sales of Bank Assets 18 Operating Expenses 51 New Deposits 670 New Loan Requests 294 Money-Market Borrowings 43 Repayment of Previous Borrowings 23 Nondeposit Service Fees 27 Dividend to Stockholders 14 0 Total Cash Inflows $866 Total Cash Outflows $541 Net Liquidity Position Total Cash Total Cash Projected for = Inflows - Outflows the Coming Week = $866 million - $541 million = + $325 million Assignment Suppose that a bank faces the following cash inflows and outflows during the coming week: a) deposit withdrawals are expected to total $33 million; b) customer loan repayments are expected to amount to $108 million; c) Operating expenses demanding cash payment will probably approach $51 million; d) Acceptable new loan requests should reach $294 million; e) Sales of bank assets are projected to be $18 million; f) New deposits should total $670 million; g) Borrowings from the money market are expected to be about $43 million; h) Nondeposit service fees should amount to $27 million; i) Previous bank borrowings totaling $23 million are scheduled to be repaid; and j) A dividend payment to bank stockholders of $140 million is scheduled. [Show More]

Last updated: 2 years ago

Preview 1 out of 10 pages

Buy Now

Instant download

We Accept: