Listen to a Business English Dialogue About Cost of funds index
Skylar: Hey Mary, have you heard about the cost of funds index?
Mary: Yeah, I’ve heard a bit about it. Isn’t it a measure that banks use to determine interest rates?
Skylar: Exactly! It’s a benchmark that reflects the cost incurred by financial institutions to borrow money from depositors or other lenders.
Mary: So, does it affect the interest rates on loans and mortgages?
Skylar: Yes, it does. Lenders often use the cost of funds index as a basis for adjusting interest rates on various financial products like adjustable-rate mortgages.
Mary: That makes sense. So, when the cost of funds index goes up, does that mean borrowers will have to pay higher interest rates?
Skylar: Yes, typically. If the cost of funds index increases, lenders may raise the interest rates on loans to maintain their profit margins.
Mary: I see. So, how frequently does the cost of funds index change?
Skylar: It can vary. Some indices change daily, while others may change monthly or quarterly, depending on the specific index and market conditions.
Mary: That sounds important for both borrowers and lenders to keep track of.
Skylar: Definitely. Keeping an eye on the cost of funds index can help borrowers anticipate changes in their loan payments and help lenders manage their profitability.
Mary: Thanks for explaining, Skylar. I’ll be sure to pay more attention to it in the future.
Skylar: No problem, Mary. It’s always good to stay informed about financial matters that can affect our loans and investments.