Marginal cost of funds,

Definition of Marginal cost of funds:

1. Cost of funding one additional loan, assuming that the banks cost of funds remains the same.

2. The incremental cost of producing an additional unit is referred to as the marginal cost. In order to calculate the marginal cost, a business divides the change in cost by the total change in production. The cost of funds is the amount of money a company pays to run its operations. For instance, the cost of funds for a financial institution is the interest it pays to its customers for things savings accounts and other simple investment vehicles. The lower the cost of funds, the better the returns. Higher costs, though, result in less-than-average returns.

3. The term marginal cost of funds refers to the increase in financing costs for a business entity as a result of adding one more dollar of new funding to its portfolio. As an incremental cost or differentiated cost, the marginal cost of funds is important when businesses need to make future capital structure decisions. Financial managers use the marginal cost of funds when they select capital sources or financing types. These financing methods incrementally add the smallest amount to total funding costs.

How to use Marginal cost of funds in a sentence?

1. This figure is important when businesses need to make future capital structure decisions.
2. Financial managers use the marginal cost of funds when selecting capital sources or financing types.
3. The marginal cost of funds is the increase in financing costs for a business as a result of adding one more dollar of new funding to its portfolio.