Suppose Big Bank offers an interest rate of 7.0% on both savings and loans, and

Question

Suppose Big Bank offers an interest rate of 7.0% on both savings and loans, and Bank Enn offers an interest rate of 7.5% on both savings and loans a. What profit opportunity is available? b. Which bank would experience a surge in the demand for loans? Which bank would receive a surge in deposits? c. What would you expect to happen to the interest rates the two banks are offering? a. What profit opportunity is available? 0 A. Take a loan from Big Bank at 7.0% and save the money in Bank Enn at 7.5%. B. Take a loan from Bank Enn at 7.5% and save the money in Big Bank at 7.0% O c. Take a loan from Big Bank at 7.5% and save the money in Big Bank at 7.0%. O D. Save at both banks. b. Which bank would experience a surge in the demand for loans? Which bank would receive a surge in deposits? 0 A. Big Bank would experience a surge in the demand for loans, while Bank Enn would receive a surge in deposits. O B. Big Bank would experience a surge in the demand for deposits, as will Bank Enn. ° C. Big Bank would experience a surge in deposits, while Bank Enn would receive a surge in loans. 0 D. Big Bank would experience a surge in the demand for loans, as will Bank Enn. c. What would you expect to happen to the interest rates the two banks are offering? A. Big Bank would decrease the interest rate and Bank Enn would increase its rate. 0 B. Both banks would decrease their interest rates. ° C. Both banks would increase their interest rates. 0 D. Big Bank would increase its interest rate and Bank Enn would decrease its rate.

Explanation / Answer

Question - a

Option - A ............ Take a loan from Big bank at 7% and save the money in Bank Enn at 7.5%

Question - b

Option - A .......... Big bank will experience a surge in the demand for loans, while the bank Enn would receive surge in savings.

Because, Loans require low rate of interest and savings need high rate of interest.

Question - C

Option - D

Big Bank would increase its interest rate and Bank Enn Would decrease its rate.

Due to increase in demand for loans ...... Interest rate will be increased by Big Bank

Due to lack of demand for Loans,............. Interest rate will be decreased by Enn Bank.

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