CFA Level I · CFA Level I Exam · Fixed-Income Issuance and Trading
Compared with a bank's retail deposit funding, wholesale funding sources such as negotiable certificates of deposit are most likely to:
Wholesale funding such as negotiable CDs is more sensitive to market interest rates and to perceptions of the bank's credit quality. Institutional investors move large sums readily and demand market pricing, whereas retail deposits tend to be stable, small and often covered by deposit guarantees.
- Acarry no interest-rate sensitivity because they are issued at fixed denominations
- Bbe more sensitive to changes in market interest rates and credit perceptionsCorrect
- Cbe insured by a deposit guarantee scheme up to the same limits as retail deposits
Explanation
Wholesale funding is raised from institutional investors in large amounts and is typically priced off market rates, so it reacts more to rate changes and to perceived credit quality of the bank. Retail deposits are generally small, sticky and often covered by guarantee schemes. Fixed denominations do not remove rate sensitivity.
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