If a bank obtains a relatively large portion of its funds from conventional demand deposits, interest expenses should be relatively ____, while its noninterest expenses should be relatively ____.

Question

Quizplus · Accepted Answer

Conventional demand deposits typically do not pay interest to the depositors. Therefore, a bank that obtains a relatively large portion of its funds from conventional demand deposits will have low interest expenses. On the other hand, noninterest expenses such as salaries, rent, utilities, and other operating expenses will not be affected by the source of funding. Therefore, noninterest expenses should be relatively high.

If a Bank Obtains a Relatively Large Portion of Its