Explanation

Federal funds borrowing is the most appropriate funding source in this situation for several reasons:

Key Factors:

1. Immediate Need: The funds are needed immediately, and federal funds borrowing provides same-day settlement.
2. Amount: $850,000 is a typical amount for federal funds transactions.
3. Bank Context: As a medium-sized bank, Palm Air would have access to the federal funds market.
4. Short-term Nature: Federal funds are overnight loans, perfect for temporary funding gaps.

Why Other Options Are Less Suitable:

• A. Commercial Paper: Typically used by larger corporations and financial institutions, not ideal for immediate needs due to issuance time.
• B. Negotiable CDs: These require time to issue and sell in the secondary market, not suitable for immediate funding needs.
• D. Eurodollar Deposits: These are time deposits in foreign banks, not practical for immediate domestic funding needs.

Federal funds borrowing allows banks to borrow excess reserves from other banks on an overnight basis, making it the fastest and most appropriate solution for immediate funding gaps.