Which of the following allow banks to minimize the cost to a business of borrowing?
I. Borrowing long and lending short
II. Raising funds from a large number of depositors
III. Creating money by lending all their reserves
A) I only
B) II only
C) I and III
D) II and III

Question

Quizplus · Accepted Answer

Raising funds from a large number of depositors allows banks to minimize the cost to a business of borrowing by diversifying their source of funds and reducing the risk of a liquidity shortfall, which can lower the interest rates they charge to borrowers. Borrowing long and lending short can lead to maturity mismatch and liquidity risk, not necessarily minimizing borrowing costs. Creating money by lending all their reserves would violate regulatory reserve requirements and does not directly relate to minimizing borrowing costs for businesses.

Which of the Following Allow Banks to Minimize the Cost