Use the following balance sheet (values in thousands of dollars) to answer the question. If the bank experiences a $50 000 sudden liquidity drain caused by withdrawal of their demand deposits, what will be the impact on the balance sheet if purchased liquidity management techniques are used?
A) A reduction in cash of $21 000 and a decrease in demand deposits of $29 000.
B) A reduction in securities and/or current loans totalling $50 000.
C) A reduction in demand deposits of $50 000 and an increase in interbank borrowings of $50 000.
D) A decrease in equity of $50 000.

Question

Use the following balance sheet (values in thousands of dollars) to answer the question.   If the bank experiences a $50 000 sudden liquidity drain caused by withdrawal of their demand deposits, what will be the impact on the balance sheet if purchased liquidity management techniques are used?
A) A reduction in cash of $21 000 and a decrease in demand deposits of $29 000. 
B) A reduction in securities and/or current loans totalling $50 000. 
C) A reduction in demand deposits of $50 000 and an increase in interbank borrowings of $50 000. 
D) A decrease in equity of $50 000.

Quizplus · Accepted Answer

The Answer of Use the following balance sheet (values in thousands of dollars) to answer the question.   If the bank experiences a $50 000 sudden liquidity drain caused by withdrawal of their demand deposits, what will be the impact on the balance sheet if purchased liquidity management techniques are used?
A) A reduction in cash of $21 000 and a decrease in demand deposits of $29 000. 
B) A reduction in securities and/or current loans totalling $50 000. 
C) A reduction in demand deposits of $50 000 and an increase in interbank borrowings of $50 000. 
D) A decrease in equity of $50 000.

Use the Following Balance Sheet (Values in Thousands of Dollars)