1.Suppose a bank wishes to raise $20 million in deposits to cover lending projections for the next quarter. It can raise the funds through fixed-term deposits at an interest rate of 6 per cent or through variable-rate savings accounts at an interest rate of 4 per cent. The bank currently has $100 million in savings accounts and is paying an interest rate of 3 per cent on the savings portfolio.

Which option should the bank use to raise the required funds? Why?

Calculate the relative cost benefit of your recommendation in part (a). LO 15.4