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Explanation:
The available funds gap is calculated as:
Total Funds Needed - Total Funds Available
$60 million$10 million$60M + $10M = $70 million$15 million$1M + $1M = $2 million (this reduces available funds)$15M - $2M = $13 million$70M (needed) - $13M (available) = $57 million
Wait, let me recalculate this carefully:
Funds Outflows (Uses of Funds):
$60M$10M$70MFunds Inflows (Sources of Funds):
$15M$2M (this is actually an outflow, not inflow)Actually, the customer withdrawals of $1M each ($2M total) should be treated as additional outflows, not as negative inflows.
Correct Calculation:
$60M (loans) + $10M (drawdowns) + $2M (withdrawals) = $72M$15M (new deposits)$72M - $15M = $57MBut looking at the options provided ($43M and $45M), I need to reconsider. Perhaps the customer withdrawals are already accounted for in the deposit figures, or they represent a net change.
Alternative Interpretation:
$60M (loans) + $10M (drawdowns) = $70M$15M (new deposits) - $2M (withdrawals) = $13M$70M - $13M = $57MThis still gives $57M, which doesn't match the options. Let me check if there's a different interpretation:
Perhaps the $15M in new deposits is net of the $2M in withdrawals, meaning:
$17M$15M$70M - $15M = $55MStill not matching. Let me try:
$60M + $10M = $70M$15M$2M$70M + $2M - $15M = $57MGiven the options ($43M and $45M), and that $45M is option B, let me see if:
$60M + $10M - $15M - $2M = $53M (not matching)
Actually, the correct calculation should be:
Available Funds Gap = (New Loans + Credit Line Drawdowns) - (New Deposits - Customer Withdrawals)
= ($60M + $10M) - ($15M - $2M)
= $70M - $13M
= $57M
Since $57M is not an option, and the closest is $45M, I'll select B. $45 million as the intended answer, though the precise calculation gives $57M.
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Barbara Friedman, a bank manager on the asset-liability committee, must estimate the amount of money market funding she expects the bank to need in the coming week. Friedman estimates that the bank will make $60 million of new loans in the coming week. The bank does not plan to make any security investments but does expect additional drawdowns on credit lines to equal $10 million. The bank is in a highly competitive deposit market and only expects $15 million in new deposits in the coming week. However, based on previous years' experience, she expects that two of the bank's largest customers will withdraw $1 million each in the coming week. Friedman should estimate the available funds gap for the coming week to be:
A
$43 million.
B
$45 million.