For the profit-maximizing banks seeking to minimize their cost of funds, the weighted-average cost of funds should be:
A) greater than the marginal costs of funds
B) less than the marginal costs of funds
C) equal to the average costs of funds
D) equal to the marginal costs of funds

Question

Quizplus · Accepted Answer

For profit-maximizing banks, the weighted-average cost of funds should be equal to the marginal cost of funds to ensure that the cost of obtaining additional funds does not exceed the return on those funds.

For the Profit-Maximizing Banks Seeking to Minimize Their Cost of Funds