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Answer: USD 9 million
## Explanation The Available Funds Gap (AFG) is calculated as: **AFG = (Current and projected loans and investments) - (Current and projected deposit inflows and other funds available)** ### Step 1: Identify Outflows (Loans and Investments) - Approved new loan requests: USD 57 million - Expected drawdown on corporate client's credit lines: USD 16 million - 10-year Treasury securities expected to be purchased: USD 35 million - **Total Outflows = 57 + 16 + 35 = USD 108 million** ### Step 2: Identify Inflows (Deposits and Available Funds) - Deposits received today: USD 60 million - Deposit inflows expected within the next week: USD 12 million - Other customer funds available today: USD 45 million - **Total Inflows = 60 + 12 + 45 = USD 117 million** ### Step 3: Calculate AFG **AFG = 108 - 117 = USD -9 million** This negative AFG of USD -9 million means the institution has USD 9 million in surplus funds after meeting all projected loan and investment needs. Therefore, the institution can meet up to **USD 9 million** in unexpected customer withdrawals while maintaining an AFG of zero. ### Why Other Options Are Incorrect: - **A (USD 0 million)**: Incorrect because the AFG is not zero; there's a surplus of USD 9 million - **B (USD 3 million)**: Incorrect because it ignores the projected deposit inflows of USD 12 million - **D (USD 15 million)**: Incorrect because it's the difference between deposit funds and other customer funds, not the actual AFG calculation
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A manager at a financial institution is assessing the cash flow requirements of the institution's largest customers using the available funds gap (AFG) model. The manager obtains the following current and projected inflows and outflows of funds:
| Item | Amount |
|---|---|
| Deposits received today | USD 60 million |
| Approved new loan requests | USD 57 million |
| Expected drawdown on corporate client's credit lines | USD 16 million |
| Deposit inflows expected within the next week | USD 12 million |
| 10-year Treasury securities expected to be purchased this week | USD 35 million |
| Other customer funds available today | USD 45 million |
Assuming all else is held constant, if the institution's objective is to maintain an AFG of zero, what is the maximum amount of unexpected customer withdrawals it can meet within the next week?
A
USD 0 million
B
USD 3 million
C
USD 9 million
D
USD 15 million