In this exercise, we're being asked to calculate the liquidity coverage ratio for the following banks, and then say, are you concerned about any of the banks breaking regulatory requirements? We have Axle Bank, Settler Bank, and Petra Bank. And we're being given a number of assets here for all of these banks as well as some liabilities and some expected cash inflows.

So first things first, we gotta sum up our liquid assets, the liquid assets at our disposal and those are things that are cash or can be turned into cash without much loss of value. So what's that gonna be? Well, we go up to our assets here and we find the cash as well as our short-term government bonds. They can be turned into cash without significant loss of value. So we have 150 available, and now we're saying, what could reasonably be expected as outflows? We're making the assumptions here that those expected outflows are going to be the deposits that are repayable on demand as well as our accounts payable. There will be assumptions involved in making this call, 170 expected outflows. And then we say, well, given our expected outflows of 170 and our expected inflows of 34, then we have an expected net outflow of 136. And then finally, we just calculate the liquidity coverage ratio. And that's going to be equal to our liquid assets divided by expected net outflows, and in this case, that's 1.1. So we're covered over 100%. So it's looking okay for Axle Bank. We copy this forward and we see that the second bank, Settler bank has a ratio of 1.2.

That's looking good. However, the third bank here, Petra Bank has a liquidity coverage ratio of less than one. It's 0.7 pointing to a problem in this bank, and too little liquidity.