Question

Unibank needs to review its liquidity position. According to the head of the division the following information applies:

i. Existing liquid assets (government securities, shares and forex) on balance sheet: $50 million;
ii. Approved, but unused credit line: $10 million;
iii. Existing available cash on balance sheet: $10 million;
iv. Cash on balance sheet utilised in terms of existing daily operations and in terms of minimum regulatory reserve cash requirements: $10 million (part of iii. above); and
v. Seven day interbank loan that funds the short-term cash requirement of Unibank: $5 million
He requests you to use the information above to do the following:
a. Determine the bank’s total available (sources of) liquidity.
b. Calculate the bank’s current total uses of liquidity.
c. Determine the net liquidity level of the bank
d. Provide conclusions about your calculations.

Answer 1

To determine the bank's total available liquidity, we need to add up the various sources of liquidity mentioned:

a. Total available liquidity:

- Existing liquid assets: $50 million

- Approved, unused credit line: $10 million

- Existing available cash: $10 million

- Seven-day interbank loan: $5 million

Total available liquidity = $50 million + $10 million + $10 million + $5 million = $75 million

b. Total uses of liquidity:

- Cash on balance sheet utilized in daily operations and regulatory reserve: $10 million

c. Net liquidity level:

Net liquidity = Total available liquidity - Total uses of liquidity

Net liquidity = $75 million - $10 million = $65 million

d. Conclusions:

Based on the calculations, the bank has a total available liquidity of $75 million. However, it is currently utilizing $10 million of its cash for daily operations and regulatory requirements. Therefore, the net liquidity level of the bank is $65 million.

These figures provide an indication of the bank's liquidity position, with $65 million available to meet its short-term funding needs. It's important for the bank to monitor and manage its liquidity effectively to ensure it can meet its obligations and maintain financial stability.