to Suppose Big Bank offers an interest rate of 4.5% on both savings and loans, a
ID: 2819376 • Letter: T
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to Suppose Big Bank offers an interest rate of 4.5% on both savings and loans, and Bank Enn offers an interest rate of 5.0% on both savings and loans. a. What profit opportunity is available? b. Which bank would experience deposits? c. What would you expect to happen to the interest rates the two banks are offering? a surge in the demand for loans? Which bank would receive a surge in a. What profit opportunity is available? OA, Take a loan from Big Bank at 4.5% and save the money in Bank Enn a15.0%. OB. Take a loan from Big Bank at 5.0% and save the money in Big Bank at 4.5%. O c. Take a loan from Bank Enn at 5.0% and save the money in Big Bank at 4.5%. 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? O A. Big Bank would experience a surge in the demand for loans, as will Bank Enn. O B. Big Bank would experience a surge in the demand for deposits, as will Bank Enn. O c. Big Bank would experience a surge in deposits, while Bank Enn would receive a surge in loans. O D. Big Bank would experience a surge in the demand for loans, while Bank Enn would receive a surge in deposits. c. What would you expect to happen to the interest rates the two banks are offering? O A. O B. O c. OD. Big Bank would increase its interest rate and Bank Enn would decrease its rate. Both banks would decrease their interest rates. Big Bank would decrease the interest rate and Bank Enn would increase its rate. Both banks would increase their interest rates. Click to select your answer Save for Later O Type here to searchExplanation / Answer
There are two banks – BB and BE.
Q. a)
Answer: A
A loan from BB requires paying only 4.5% interest; if this money deposits to BE, an interest could be earned at 5% rate. Therefore, there is a profit at (5% - 4.5% =) 0.5% rate.
Q. b)
Answer: D
The bank having lower interest would be demanded for loan, which is BB; the bank having higher interest would be demanded for deposit, which is BE.
Q. c)
Answer: A
BB would increase the rate so that it is nearer to BE rate; at the same time BE would decrease the rate so that it is nearer to BB rate. In this way both banks are having demands in both loan and deposit, which is required for maintaining normal banking activity.
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