A retail bank's sources of funds include savings, time and checking (current) deposits. Currently XYZ Bank of Macao, a leading Macao bank, quoted interest rates

of 0.02% on savings accounts, 0.25% on 12 monts time deposit and nothing on checking accounts. Suppose also the bank incurs an additional 0.15% cost to administer checking accounts and 0.1% cost for savings accounts and time deposits.

a) list the three sources of funds in ascending order of of annual cost per dollar of funds

b) Suppose the bank has $2 billion of savings deposits, $5 billion of time deposits and $3 billion of checking deposits. On a diagram with amount of funds in billions of dollars (from 0 to 10 billion) on the horizontal axis and cost in millions of dollars on the vertical axis, illustrate (i) average variable cost of funds (ii) marginal cost of funds If you prefer, you may tabulate your answer instead of drawing a graph.