Which of the following is not an advantage of larger cash balances for a bank?
A) Larger cash balances reduce the need to borrow at the discount window.
B) Larger cash balances reduce the risk of bank runs.
C) Larger cash balances reduce the risk of paying penalties to the Federal Reserve.
D) Larger cash balances increase reserve balances.
E) Larger cash balances reduce a bank's interest expense.

Question

Quizplus · Accepted Answer

Larger cash balances do not reduce a bank's interest expense. In fact, holding larger cash balances can lead to higher opportunity costs because the bank could have invested that cash in interest-bearing assets. The other options (A, B, C, D) are advantages of maintaining larger cash balances.

Which of the Following Is Not an Advantage of Larger