Calculate the liquidity index for infinity bank

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"Sakura Bank is facing a short-term liquidity deficit. It plans to cover this deficit with either an ordinary share issue or an interbank borrowing arrangement."

a) Which financing option do you think will be more beneficial for Sakura Bank in terms of cost and availability? Explain your answer.

b) Infinity Bank has the following assets in its portfolio: $40 million in cash reserves with the Reserve Bank, $40 million in Treasury notes, and $60 million in mortgage loans. If the assets need to be liquidated at short notice, Infinity will receive only 99 per cent of the fair market value of the Treasury notes and 90 per cent of the fair market value of the mortgage loans.

(i) Calculate the liquidity index for Infinity Bank.

(ii) Based on this index, is Infinity Bank highly liquid?

(iii) Is the liquidity index a comprehensive measure of a bank's overall access to liquidity? Why or why not?

c) Does Australian banks currently source more funding from deposit liabilities or non-deposit liabilities? Give three (3) reasons to support the rationale behind this funding strategy by Australian banks.

Reference no: EM132704857

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