Explanation:
Correct Answer: D
Explanation: Advances from Federal Home Loan Banks are indeed highly popular among thrifts and small to medium-sized banks because they provide a stable, reliable source of flexible-maturity funding at below-market interest rates, due to the implicit government guarantee of the FHLBanks.
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20.14.1. According to Rose and Hudgins, the factors affecting the choice of non-deposit funding sources include the following: the relative costs of each funding source; the risk of each funding source, including the dependability and volatility; the length of time for which funds will be needed; the size of the financial institution needing the funds; and regulations on the use of other sources of funds. In regard to the various sources of non-deposit funding, which of the following statements is TRUE?
A
The Fed Funds market is the least popular because its effective interest rate is higher than the alternatives
B
Repurchase agreements are more popular than Fed Funds because they are simpler, however, they incur greater credit risk
C
The advantages of the commercial paper (CP) market are the lack of credit risk and consistently high (i.e., low volatility) credit availability, however, volume tends to be low and relative cost is high
D
Advances from Federal Home Loan Banks (aka, FHLBanks) are highly popular among thrifts and small banks as a stable source of flexible (with respect to maturity) funding at below-market interest rates