Explanation:
The marginal cost deposit pricing approach is a method that focuses on the weighted average cost of new funds raised from various sources that the bank draws upon or plans to draw upon in the current period. This approach is preferred by depositary institutions over the historical average cost approach because it takes into account the frequent changes in interest rates, making it a more reliable standard for pricing. The marginal cost deposit pricing approach is
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Q.4086 For depository organizations to price their deposits adequately, they must know the cost of the deposits. Different approaches may be used in determining deposit costs. Which one is the most appropriate?
A
Historical average cost approach
B
Marginal cost deposit pricing approach
C
Average percentage yield approach
D
None of the above
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