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Asset and Liability Management: The Banker’s Guide to Value Creation and Risk Control, Second Edition by Youssef F. Bissada, Jean Dermine

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Solution to Stage Sixteen

1.

e-Bank does not meet the one-week liquidity policy as the estimated cash outflows over the first week (24,800) exceed 5% of the deposit base (400,000 × 5% = 20,000).

e-Bank meets the two-week liquidity policy as the cumulative cash outflows (29,600) are less than 10% of the customers’ deposit base (400,000 × 10% = 40,000).

2.One way to improve the liquidity of the first week is to borrow one-year maturity for 10,000 and buy a one-week bond. At reimbursement of the bond, an additional liquidity of 10,000 would be available, reducing the one-week liquidity gap to 14,800 (24,800 – 10,000).
3.In the case of a bank run, ...

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