Set formula in the Liquidity Agreement

Aug 6th, 2022
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How to set formula in the Liquidity Agreement

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lets assume Bank a needs cash quickly and owns a bunch of assets bonds in our case Bank B on the other hand has excess cash and wants to put it to good use in such cases Bank a can engage in a so called repurchase or repo agreement which works like this one Bank a which is called the dealer gives the bonds it owns the bank B and the grease to buy them back at a later date usually very quickly for example the next day to Bank B gives Bank a the cash it needs three when the time comes back a buys the bonds back from Bank B at a higher price in other words Bank a received the cash it needed and Bank B made some money from the perspective of Bank a this was a repo from the perspective of Bank B which is on the other side of the trade it was a reverse repo or buying securities from Bank a II with the intention of selling them back to it at a profit later on from banks mutual funds and hedge funds through even central banks repo transactions are an options for quite a few entities in many

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So, to calculate the LCR (liquidity coverage ratio), youll need to divide the banks high-quality liquid assets by their total net cash flows over the course of a specific, 30-day stress period.
The formula is as follows: current assets / current liabilities. With an even greater focus on the short term, the quick liquidity ratio excludes your product inventory, because this calculation just considers the resources that your company already possesses.
It is calculated by dividing total current assets by total current liabilities. A higher ratio indicates the company has enough liquid assets to cover its short-term debts. In comparison, a low ratio suggests that the company may not have enough cash or other liquid assets to cover its immediate liabilities.
A company can gauge its liquidity by calculating its current ratio, quick ratio, or operating cash flow ratio. Liquidity is important as it indicates whether there will be the short-term inability to satisfy debts or make agreements whole.
Basic Defense Interval = (Cash + Receivables + Marketable Securities) (Operating expenses +Interest + Taxes)365 = (2188+1072+65)(11215+25+1913)365 = 92.27. Absolute liquidity ratio =(Cash + Marketable Securities) Current Liability =(2188+65) 8035 = 0.28.
Fundamentally, all liquidity ratios measure a firms ability to cover short-term obligations by dividing current assets by current liabilities (CL).
Types of liquidity ratios Current Ratio = Current Assets / Current Liabilities. Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities. Cash Ratio = (Cash + Marketable Securities) / Current Liabilities. Net Working Capital = Current Assets Current Liabilities.
The overall liquidity ratio is calculated by dividing total assets by the difference between its total liabilities and conditional reserves. This ratio is used in the insurance industry, as well as in the analysis of financial institutions.

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