Which of the following rankings of liabilities is correct if they are ranked by funding costs from lowest cost to highest cost?
A)Retail certificates of deposit; repurchase agreements; federal funds.
B)Federal funds; demand deposits; certificates of deposit.
C)Repurchase agreements; money market demand accounts; retail certificates of deposit.
D)Certificates of deposit; federal funds; demand deposits.
E)Demand deposits; federal funds; passbook savings.

Question

Quizplus · Accepted Answer

Retail certificates of deposit have the lowest funding cost because they are long-term deposits that are not as liquid as other types of liabilities. Repurchase agreements are also relatively low-cost because they are secured by Treasury securities. Federal funds are the most expensive type of liability because they are short-term loans between banks that are used to meet reserve requirements.

Which of the Following Rankings of Liabilities Is Correct If