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A treasurer of a bank is assessing the different methods of pricing liquidity and is concerned about the potential impact of applying each method. The treasurer asks an analyst to review and evaluate the various liquidity transfer pricing approaches and to prepare a report with recommendations. Which of the following statements should be included in the report?
A
A zero-cost of funds approach tends to result in the bank holding long-term highly illiquid assets funded by long-term stable liabilities.
B
An average cost of funds approach tends to result in the greatest maturity transformation for a bank's balance sheet.
C
A matched-maturity marginal cost of funds approach converts the bank's fixed-rate borrowing cost to a floating-rate borrowing cost.
D
Both an average cost of funds approach and a zero-cost of funds approach appropriately align the maturity of the bank's lending and borrowing activities when management compensation is based on net income.